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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to       

 

Commission File Number: 0-18183

 G-III APPAREL GROUP, LTD.

(Exact name of registrant as specified in its charter) 

 

Delaware

    

41-1590959

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

512 Seventh Avenue, New York, New York

 

10018

(Address of principal executive offices)

 

(Zip Code)

(212) 403-0500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

GIII

The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)  Yes      No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 

As of September 6, 2022, there were 47,486,633 shares of issuer’s common stock, par value $0.01 per share, outstanding.

Table of Contents

TABLE OF CONTENTS

    

Page No.

Part I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets –July 31, 2022, July 31, 2021 and January 31, 2022

3

Condensed Consolidated Statements of Operations and Comprehensive Income - For the Three and Six Months Ended July 31, 2022 and 2021 (Unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity –July 31, 2022 and July 31, 2021 (Unaudited)

5

Condensed Consolidated Statements of Cash Flows - For the Six Months Ended July 31, 2022 and 2021 (Unaudited)

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

Part II

OTHER INFORMATION

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

36

Item 6.

Exhibits

37

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.          Financial Statements.

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

July 31,

July 31,

January 31,

2022

2021

2022

    

(Unaudited)

    

(Unaudited)

    

(In thousands, except per share amounts)

ASSETS

Current assets

Cash and cash equivalents

$

150,977

$

509,988

$

465,984

Accounts receivable, net of allowance for doubtful accounts of $18.1 million, $17.4 million and $17.4 million, respectively

488,523

385,047

605,512

Inventories

1,040,814

499,337

512,155

Prepaid income taxes

1,142

1,115

14,502

Prepaid expenses and other current assets

83,954

66,343

54,704

Total current assets

1,765,410

1,461,830

1,652,857

Investments in unconsolidated affiliates

26,117

63,383

65,503

Property and equipment, net

54,421

51,425

48,805

Operating lease assets

209,000

172,916

169,595

Other assets, net

55,462

61,476

54,992

Other intangibles, net

35,427

33,136

31,361

Deferred income tax assets, net

9,405

5,260

3,559

Trademarks

622,182

441,788

453,329

Goodwill

304,930

262,372

262,527

Total assets

$

3,082,354

$

2,553,586

$

2,742,528

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Current portion of notes payable

$

80,109

$

5,624

$

4,237

Accounts payable

438,167

252,313

236,921

Accrued expenses

130,806

114,030

128,124

Customer refund liabilities

56,384

63,082

86,788

Current operating lease liabilities

49,734

43,119

42,763

Income tax payable

12,642

5,699

9,995

Other current liabilities

1,544

1,674

1,977

Total current liabilities

769,386

485,541

510,805

Notes payable, net of discount and unamortized issuance costs

495,668

512,017

515,344

Deferred income tax liabilities, net

36,447

20,133

40,010

Noncurrent operating lease liabilities

179,247

147,119

142,868

Other noncurrent liabilities

17,396

7,204

13,118

Total liabilities

1,498,144

1,172,014

1,222,145

Redeemable noncontrolling interests

209

960

471

Stockholders' Equity

Preferred stock; 1,000 shares authorized; no shares issued

Common stock - $0.01 par value; 120,000 shares authorized; 49,396, 49,396 and 49,396 shares issued, respectively

264

264

264

Additional paid-in capital

461,621

447,476

456,329

Accumulated other comprehensive loss

(16,226)

(7,026)

(14,529)

Retained earnings

1,183,958

961,901

1,117,005

Common stock held in treasury, at cost - 1,909, 829 and 1,480 shares, respectively

(45,616)

(22,003)

(39,157)

Total stockholders' equity

1,584,001

1,380,612

1,519,912

Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

3,082,354

$

2,553,586

$

2,742,528

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended July 31,

Six Months Ended July 31,

2022

    

2021

    

2022

    

2021

(Unaudited)

(In thousands, except per share amounts)

Net sales

$

605,244

$

483,081

$

1,294,001

$

1,002,991

Cost of goods sold

376,318

290,203

819,036

614,644

Gross profit

228,926

192,878

474,965

388,347

Selling, general and administrative expenses

191,041

146,840

376,458

288,443

Depreciation and amortization

6,656

7,098

12,751

14,142

Gain on lease terminations

(29)

(38)

Operating profit

31,258

38,940

85,794

85,762

Other income

30,325

1,975

27,618

3,795

Interest and financing charges, net

(12,550)

(12,574)

(24,753)

(24,578)

Income before income taxes

49,033

28,341

88,659

64,979

Income tax expense

12,968

9,235

21,968

19,494

Net income

36,065

19,106

66,691

45,485

Less: Loss attributable to noncontrolling interests

(254)

(62)

(262)

(4)

Net income attributable to G-III Apparel Group, Ltd.

$

36,319

$

19,168

$

66,953

$

45,489

NET INCOME PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.:

Basic:

Net income per common share

$

0.76

$

0.40

$

1.39

$

0.94

Weighted average number of shares outstanding

47,999

48,476

48,007

48,427

Diluted:

Net income per common share

$

0.74

$

0.39

$

1.36

$

0.92

Weighted average number of shares outstanding

49,019

49,523

49,061

49,502

Net income

$

36,065

$

19,106

$

66,691

$

45,485

Other comprehensive income (loss):

Foreign currency translation adjustments

2,493

2,021

(1,637)

(4,938)

Other comprehensive income (loss):

2,493

2,021

(1,637)

(4,938)

Comprehensive income

$

38,558

$

21,127

$

65,054

$

40,547

Comprehensive (loss) income attributable to noncontrolling interests:

Net loss

(254)

(62)

(262)

(4)

Foreign currency translation adjustments

(62)

10

(60)

6

Comprehensive (loss) income attributable to noncontrolling interests

(316)

(52)

(322)

2

Comprehensive income attributable to G-III Apparel Group, Ltd.

$

38,242

$

21,075

$

64,732

$

40,549

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Accumulated

Common

Additional

Other

Stock

Common

Paid-In

Comprehensive

Retained

Held In

    

Stock

    

Capital

    

Loss

    

Earnings

    

Treasury

    

Total

(Unaudited)

(In thousands)

Balance as of April 30, 2022

$

264

$

460,999

$

(18,657)

$

1,147,639

$

(31,953)

$

1,558,292

Equity awards exercised/vested, net

(2,959)

2,959

Share-based compensation expense

4,696

4,696

Taxes paid for net share settlements

(1,115)

(1,115)

Other comprehensive income, net

2,431

2,431

Repurchases of common stock

(16,622)

(16,622)

Net income attributable to G-III Apparel Group, Ltd.

36,319

36,319

Balance as of July 31, 2022

$

264

$

461,621

$

(16,226)

$

1,183,958

$

(45,616)

$

1,584,001

Balance as of April 30, 2021

$

264

$

450,961

$

(9,057)

$

942,733

$

(27,025)

$

1,357,876

Equity awards exercised/vested, net

(5,022)

5,022

Share-based compensation expense

5,871

5,871

Taxes paid for net share settlements

(4,334)

(4,334)

Other comprehensive loss, net

2,031

2,031

Cumulative effect of change in accounting principle

Net income attributable to G-III Apparel Group, Ltd.

19,168

19,168

Balance as of July 31, 2021

$

264

$

447,476

$

(7,026)

$

961,901

$

(22,003)

$

1,380,612

Balance as of January 31, 2022

$

264

$

456,329

$

(14,529)

$

1,117,005

$

(39,157)

$

1,519,912

Equity awards exercised/vested, net

(10,163)

10,163

Share-based compensation expense

25,245

25,245

Taxes paid for net share settlements

(9,790)

(9,790)

Other comprehensive income, net

(1,697)

(1,697)

Repurchases of common stock

(16,622)

(16,622)

Net income attributable to G-III Apparel Group, Ltd.

66,953

66,953

Balance as of July 31, 2022

$

264

$

461,621

$

(16,226)

$

1,183,958

$

(45,616)

$

1,584,001

Balance as of January 31, 2021

$

264

$

448,417

$

(2,094)

$

916,683

$

(27,029)

$

1,336,241

Equity awards exercised/vested, net

(5,026)

5,026

Share-based compensation expense

8,419

8,419

Taxes paid for net share settlements

(4,334)

(4,334)

Cumulative effect of change in accounting principle

(271)

(271)

Other comprehensive loss, net

(4,932)

(4,932)

Net income attributable to G-III Apparel Group, Ltd.

45,489

45,489

Balance as of July 31, 2021

$

264

$

447,476

$

(7,026)

$

961,901

$

(22,003)

$

1,380,612

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended July 31,

    

2022

    

2021

(Unaudited)

(In thousands)

Cash flows from operating activities

Net income attributable to G-III Apparel Group, Ltd.

$

66,953

$

45,489

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

12,751

14,142

Loss on disposal of fixed assets

33

21

Non-cash operating lease costs

24,271

20,598

Gain on lease modifications

(38)

Dividend received from unconsolidated affiliate

392

Equity gain in unconsolidated affiliates

(980)

(2,254)

Change in fair value of equity securities

1,718

Share-based compensation

25,245

8,419

Deferred financing charges and debt discount amortization

5,057

4,781

Deferred income taxes

(226)

(163)

Non-cash gain on fair value of prior minority ownership of Karl Lagerfeld

(30,925)

Changes in operating assets and liabilities:

Accounts receivable, net

145,134

107,652

Inventories

(496,351)

(82,835)

Income taxes, net

15,009

18,833

Prepaid expenses and other current assets

(5,767)

(9,598)

Other assets, net

(307)

717

Customer refund liabilities

(30,404)

(36,274)

Operating lease liabilities

(23,547)

(22,562)

Accounts payable, accrued expenses and other liabilities

182,480

126,468

Net cash (used in) provided by operating activities

(109,894)

193,826

Cash flows from investing activities

Operating lease assets initial direct costs

(87)

Investment in e-commerce retailer

(25,000)

(25,000)

Investment in equity securities

(22,378)

Capital expenditures

(8,526)

(7,526)

Acquisition of KLH, net of cash acquired

(168,592)

Net cash used in investing activities

(224,583)

(32,526)

Cash flows from financing activities

Repayment of borrowings - revolving facility

(8,647)

Proceeds from borrowings - revolving facility

57,946

Repayment of borrowings - foreign facilities

(600)

Proceeds from borrowings - foreign facilities

581

1,706

Purchase of treasury shares

(16,622)

Taxes paid for net share settlements

(9,790)

(4,334)

Net cash provided by (used in) financing activities

22,868

(2,628)

Foreign currency translation adjustments

(3,398)

(618)

Net (decrease) increase in cash and cash equivalents

(315,007)

158,054

Cash and cash equivalents at beginning of period

465,984

351,934

Cash and cash equivalents at end of period

$

150,977

$

509,988

Supplemental disclosures of cash flow information

Cash payments:

Interest, net

$

18,576

$

19,545

Income tax payments, net

$

6,733

$

682

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

As used in these financial statements, the term “Company” or “G-III” refers to G-III Apparel Group, Ltd. and its subsidiaries. The Company designs, sources and markets an extensive range of apparel, including outerwear, dresses, sportswear, swimwear, women’s suits and women’s performance wear, as well as women’s handbags, footwear, small leather goods, cold weather accessories and luggage. The Company also operates retail stores and licenses its proprietary brands for several product categories.

The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries. Karl Lagerfeld Holding B.V. (“KLH”) is a Dutch limited liability company that was 19% owned by the Company through May 30, 2022 and was accounted for during that time using the equity method of accounting. Effective May 31, 2022, the Company acquired the remaining 81% interest in KLH that it did not previously own and, as a result, KLH began being treated as a consolidated wholly-owned subsidiary. KL North America B.V. (“KLNA”) is a Dutch joint venture limited liability company that was 49% owned by the Company and 51% indirectly owned by KLH through May 30, 2022 and was accounted for during that time using the equity method of accounting. Effective May 31, 2022, KLNA became an indirect wholly-owned subsidiary of the Company as a result of the Company’s acquisition of the remaining 81% interest in KLH it did not previously own. All material intercompany balances and transactions have been eliminated. The results of KLH are included in the Company’s consolidated financial statements beginning May 31, 2022.

Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, KLH, Fabco Holding B.V. (“Fabco”) and Sonia Rykiel, which the Company purchased in October 2021, report results on a calendar year basis rather than on the January 31 fiscal year basis used by the Company. Accordingly, the results of Vilebrequin, KLH, Fabco and Sonia Rykiel are, and will be, included in the financial statements for the quarter ended or ending closest to the Company’s fiscal quarter end. For example, with respect to the Company’s results for the six-month period ended July 31, 2022, the results of Vilebrequin, Fabco and Sonia Rykiel are included for the six-month period ended June 30, 2022. For the three and six month periods ended June 30, 2022, the results of KLH, which includes KLNA, are included for the one month period ended June 30, 2022 and the results of the Company’s previous 49% ownership interest in KLNA and 19% ownership interest in KLH are included for the period from February 1, 2022 through May 30, 2022. The Company’s retail operations segment reports on a 52/53-week fiscal year. For fiscal 2023 and 2022, the three and six-month periods for the retail operations segment were each 13-week and 26-week periods, respectively, and ended on July 30, 2022 and August 1, 2021, respectively.  

The results for the three and six months ended July 31, 2022 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of the Company’s business and the effects of the COVID-19 pandemic on the Company’s business. The accompanying financial statements included herein are unaudited. All adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period presented have been reflected.

The accompanying financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed with the Securities and Exchange Commission (the “SEC”).

Assets and liabilities of the Company’s foreign operations, where the functional currency is not the U.S. dollar (reporting currency), are translated from the foreign currency into U.S. dollars at period-end rates, while income and expenses are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive loss within stockholders’ equity.

Note 2 – Allowance for Doubtful Accounts

The Company’s financial instruments consist of trade receivables arising from revenue transactions in the ordinary course of business. The Company considers its trade receivables to consist of two portfolio segments: wholesale and retail trade

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receivables. Wholesale trade receivables result from credit the Company has extended to its wholesale customers based on pre-defined criteria and are generally due within 30 to 60 days. Retail trade receivables primarily relate to amounts due from third-party credit card processors for the settlement of debit and credit card transactions and are typically collected within 3 to 5 days.

The Company’s accounts receivable and allowance for doubtful accounts as of July 31, 2022, July 31, 2021 and January 31, 2022 were:

July 31, 2022

    

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

505,635

$

955

$

506,590

Allowance for doubtful accounts

(18,001)

(66)

(18,067)

Accounts receivable, net

$

487,634

$

889

$

488,523

July 31, 2021

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

400,714

$

1,775

$

402,489

Allowance for doubtful accounts

(17,386)

(56)

(17,442)

Accounts receivable, net

$

383,328

$

1,719

$

385,047

January 31, 2022

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

620,737

$

2,166

$

622,903

Allowance for doubtful accounts

(17,307)

(84)

(17,391)

Accounts receivable, net

$

603,430

$

2,082

$

605,512

The allowance for doubtful accounts for wholesale trade receivables is estimated based on several factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (such as in the case of bankruptcy filings (including potential bankruptcy filings), extensive delay in payment or substantial downgrading by credit rating agencies), a specific reserve for bad debt is recorded against amounts due from that customer to reduce the net recognized receivable to the amount reasonably expected to be collected. For all other wholesale customers, an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the end of the reporting period for financial statements, assessments of collectability based on historical trends and an evaluation of the impact of economic conditions. The Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.

The allowance for doubtful accounts for retail trade receivables is estimated at the credit card chargeback rate applied to the previous 90 days of credit card sales. In addition, the Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.

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The Company had the following activity in its allowance for credit losses:

    

Wholesale

    

Retail

    

Total

(In thousands)

Balance as of January 31, 2022

$

(17,307)

$

(84)

$

(17,391)

Provision for credit losses, net

(737)

18

(719)

Accounts written off as uncollectible

43

43

Balance as of July 31, 2022

$

(18,001)

$

(66)

$

(18,067)

Balance as of January 31, 2021

$

(17,429)

$

(30)

$

(17,459)

Provision for credit losses, net

(28)

(26)

(54)

Accounts written off as uncollectible

71

71

Balance as of July 31, 2021

$

(17,386)

$

(56)

$

(17,442)

Balance as of January 31, 2021

$

(17,429)

$

(30)

$

(17,459)

Provision for credit losses, net

(103)

(54)

(157)

Accounts written off as uncollectible

225

225

Balance as of January 31, 2022

$

(17,307)

$

(84)

$

(17,391)

Note 3 – Inventories

Wholesale inventories, which comprise a significant portion of the Company’s inventory, are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Retail and Vilebrequin inventories are stated at the lower of cost (determined by the weighted average method) or net realizable value. Substantially all of the Company’s inventories consist of finished goods.

The inventory return asset, which consists of the amount of goods that are anticipated to be returned by customers, was $9.3 million, $11.2 million and $18.9 million as of July 31, 2022, July 31, 2021 and January 31, 2022, respectively. The inventory return asset is recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets.

Inventory held on consignment by the Company’s customers totaled $5.7 million, $4.7 million and $4.5 million at July 31, 2022, July 31, 2021 and January 31, 2022, respectively. Consignment inventory is held by the Company’s customers. The Company reflects this inventory on its condensed consolidated balance sheets.

Note 4 – Fair Value of Financial Instruments

Generally Accepted Accounting Principles establish a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable.

Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement.

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The following table summarizes the carrying values and the estimated fair values of the Company’s debt instruments:

Carrying Value

Fair Value

    

July 31,

July 31,

January 31,

    

July 31,

July 31,

January 31,

Financial Instrument

Level

2022

2021