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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 October 31, 2023

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 December 4, 2023, there were 45,727,662 shares of issuer’s common stock, par value $0.1 per share, outstanding.

Table of Contents

TABLE OF CONTENTS

    

Page No.

Part I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets – October 31, 2023 (Unaudited), October 31, 2022 (Unaudited) and January 31, 2023

3

Condensed Consolidated Statements of Operations and Comprehensive Income – For the Three and Nine Months Ended October 31, 2023 and 2022 (Unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity – October 31, 2023 and October 31, 2022 (Unaudited)

5

Condensed Consolidated Statements of Cash Flows – For the Nine Months Ended October 31, 2023 and 2022 (Unaudited)

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

Part II

OTHER INFORMATION

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

7

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.          Financial Statements.

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

October 31,

October 31,

January 31,

2023

2022

2023

    

(Unaudited)

    

(Unaudited)

    

(In thousands, except per share amounts)

ASSETS

Current assets

Cash and cash equivalents

$

197,391

$

150,719

$

191,652

Accounts receivable, net of allowance for doubtful accounts of $18,412 $18,258 and $18,297, respectively

863,221

881,135

674,963

Inventories

591,530

900,987

709,345

Prepaid income taxes

2,216

1,110

5,886

Prepaid expenses and other current assets

58,779

50,594

70,654

Total current assets

1,713,137

1,984,545

1,652,500

Investments in unconsolidated affiliates

24,354

25,870

24,467

Property and equipment, net

52,032

54,185

53,742

Operating lease assets

221,474

216,663

239,665

Other assets, net

53,852

54,206

52,644

Other intangibles, net

32,565

34,585

34,842

Deferred income tax assets, net

26,389

8,973

26,389

Trademarks

625,530

607,526

628,156

Goodwill

303,668

Total assets

$

2,749,333

$

3,290,221

$

2,712,405

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Current portion of notes payable

$

59,099

$

91,613

$

135,518

Accounts payable

179,396

223,154

169,508

Accrued expenses

153,200

150,349

115,586

Customer refund liabilities

108,042

99,528

89,760

Current operating lease liabilities

55,897

50,645

52,917

Income tax payable

46,380

26,956

14,875

Other current liabilities

330

933

905

Total current liabilities

602,344

643,178

579,069

Notes payable, net of discount and unamortized issuance costs

402,846

787,892

483,840

Deferred income tax liabilities, net

44,265

34,894

44,783

Noncurrent operating lease liabilities

183,522

185,171

204,974

Other noncurrent liabilities

14,543

16,787

15,141

Total liabilities

1,247,520

1,667,922

1,327,807

Redeemable noncontrolling interests

(1,407)

41

(850)

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

453,504

465,230

468,712

Accumulated other comprehensive loss

(15,995)

(42,744)

(11,653)

Retained earnings

1,131,258

1,245,061

983,944

Common stock held in treasury, at cost - 3,670, 1,907 and 2,680 shares, respectively

(65,811)

(45,553)

(55,819)

Total stockholders' equity

1,503,220

1,622,258

1,385,448

Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

2,749,333

$

3,290,221

$

2,712,405

The accompanying notes are an integral part of these statements.

3

Table of Contents

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended October 31,

Nine Months Ended October 31,

2023

    

2022

    

2023

    

2022

(Unaudited)

(In thousands, except per share amounts)

Net sales

$

1,067,110

$

1,078,299

$

2,333,460

$

2,372,300

Cost of goods sold

633,697

733,672

1,373,594

1,552,708

Gross profit

433,413

344,627

959,866

819,592

Selling, general and administrative expenses

236,308

239,893

703,476

616,351

Depreciation and amortization

6,595

7,270

19,130

20,021

Asset impairments and gain on lease terminations

222

250

222

212

Operating profit

190,288

97,214

237,038

183,008

Other (loss) income

(3,129)

(2,795)

(1,964)

24,823

Interest and financing charges, net

(11,024)

(16,052)

(32,666)

(40,805)

Income before income taxes

176,135

78,367

202,408

167,026

Income tax expense

48,755

17,521

55,651

39,489

Net income

127,380

60,846

146,757

127,537

Less: Loss attributable to noncontrolling interests

(260)

(257)

(557)

(519)

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

$

127,640

$

61,103

$

147,314

$

128,056

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

Basic:

Net income per common share

$

2.79

$

1.29

$

3.21

$

2.68

Weighted average number of shares outstanding

45,723

47,488

45,904

47,832

Diluted:

Net income per common share

$

2.74

$

1.26

$

3.13

$

2.62

Weighted average number of shares outstanding

46,560

48,475

46,992

48,866

Net income

$

127,380

$

60,846

$

146,757

$

127,537

Other comprehensive loss:

Foreign currency translation adjustments

(11,391)

(26,473)

(4,317)

(28,111)

Other comprehensive loss

(11,391)

(26,473)

(4,317)

(28,111)

Comprehensive income

$

115,989

$

34,373

$

142,440

$

99,426

Comprehensive loss attributable to noncontrolling interests:

Net loss

(260)

(257)

(557)

(519)

Foreign currency translation adjustments

(1)

(45)

(25)

(104)

Comprehensive loss attributable to noncontrolling interests

(261)

(302)

(582)

(623)

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

$

115,728

$

34,071

$

141,858

$

98,803

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 July 31, 2023

$

264

$

448,762

$

(4,603)

$

1,003,618

$

(65,926)

$

1,382,115

Equity awards vested, net

(115)

115

Share-based compensation expense

4,890

4,890

Taxes paid for net share settlements

(33)

(33)

Other comprehensive loss, net

(11,392)

(11,392)

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

127,640

127,640

Balance as of October 31, 2023

$

264

$

453,504

$

(15,995)

$

1,131,258

$

(65,811)

$

1,503,220

Balance as of July 31, 2022

$

264

$

461,621

$

(16,226)

$

1,183,958

$

(45,616)

$

1,584,001

Equity awards vested, net

(63)

63

Share-based compensation expense

3,672

3,672

Other comprehensive loss, net

(26,518)

(26,518)

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

61,103

61,103

Balance as of October 31, 2022

$

264

$

465,230

$

(42,744)

$

1,245,061

$

(45,553)

$

1,622,258

Balance as of January 31, 2023

$

264

$

468,712

$

(11,653)

$

983,944

$

(55,819)

$

1,385,448

Equity awards vested, net

(16,108)

16,108

Share-based compensation expense

11,728

11,728

Taxes paid for net share settlements

(10,828)

(10,828)

Other comprehensive loss, net

(4,342)

(4,342)

Repurchases of common stock

(26,100)

(26,100)

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

147,314

147,314

Balance as of October 31, 2023

$

264

$

453,504

$

(15,995)

$

1,131,258

$

(65,811)

$

1,503,220

Balance as of January 31, 2022

$

264

$

456,329

$

(14,529)

$

1,117,005

$

(39,157)

$

1,519,912

Equity awards vested, net

(10,226)

10,226

Share-based compensation expense

28,917

28,917

Taxes paid for net share settlements

(9,790)

(9,790)

Other comprehensive loss, net

(28,215)

(28,215)

Repurchases of common stock

(16,622)

(16,622)

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

128,056

128,056

Balance as of October 31, 2022

$

264

$

465,230

$

(42,744)

$

1,245,061

$

(45,553)

$

1,622,258

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

Nine Months Ended October 31,

    

2023

    

2022

(Unaudited, in thousands)

Cash flows from operating activities

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

$

147,314

$

128,056

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

Depreciation and amortization

19,130

20,021

Loss on disposal of fixed assets

239

127

Non-cash operating lease costs

43,467

38,264

Gain on lease terminations

(38)

Asset impairment

222

250

Equity gain (loss) in unconsolidated affiliates

3,725

(817)

Change in fair value of equity securities

(1,009)

1,182

Share-based compensation

11,728

28,917

Deferred financing charges and debt discount amortization

6,054

7,629

Deferred income taxes

(519)

(1,347)

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

(30,925)

Changes in operating assets and liabilities:

Accounts receivable, net

(188,258)

(248,280)

Inventories

117,815

(355,313)

Income taxes, net

35,175

29,444

Prepaid expenses and other current assets

12,636

5,274

Other assets, net

(3,044)

(718)

Customer refund liabilities

18,282

12,740

Operating lease liabilities

(43,750)

(38,312)

Accounts payable, accrued expenses and other liabilities

47,064

(11,484)

Net cash provided by (used in) operating activities

226,271

(415,330)

Cash flows from investing activities

Operating lease assets initial direct costs

(52)

(85)

Investment in e-commerce retailer

(25,000)

Investment in equity interest of private company

(3,600)

Investment in equity securities

(22,378)

Sale of equity securities

22,434

Capital expenditures

(15,653)

(14,803)

Acquisition of KLH, net of cash acquired

(168,592)

Acquisition of other foreign business, net of cash required

(2,701)

Net cash used in investing activities

(19,305)

(211,125)

Cash flows from financing activities

Repayment of borrowings - revolving facility

(112,826)

(172,513)

Proceeds from borrowings - revolving facility

32,738

512,748

Repayment of borrowings - LVMH Note

(75,000)

Repayment of borrowings - foreign facilities

(106,100)

(28,512)

Proceeds from borrowings - foreign facilities

99,032

36,863

Purchase of treasury shares

(26,100)

(16,622)

Taxes paid for net share settlements

(10,828)

(9,790)

Net cash (used in) provided by financing activities

(199,084)

322,174

Foreign currency translation adjustments

(2,143)

(10,984)

Net increase (decrease) in cash and cash equivalents

5,739

(315,265)

Cash and cash equivalents at beginning of period

191,652

465,984

Cash and cash equivalents at end of period

$

197,391

$

150,719

Supplemental disclosures of cash flow information

Cash payments:

Interest, net

$

32,882

$

38,391

Income tax payments, net

$

20,195

$

4,643

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 under several product categories.

The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries. Fabco Holding B.V. (“Fabco”) is a Dutch joint venture limited liability company that is 75% owned by the Company and is treated as a consolidated majority-owned subsidiary. Sonia Rykiel is a wholly-owned operating subsidiary. 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.

KLH, Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, Fabco and Sonia Rykiel report results on a calendar year basis rather than on the January 31 fiscal year basis used by the Company. Accordingly, the results of KLH, Vilebrequin, Fabco and Sonia Rykiel are 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 nine-month period ended October 31, 2023, the results of KLH, Vilebrequin, Fabco and Sonia Rykiel are included for the nine-month period ended September 30, 2023. For the year ended January 31, 2023, the results of KLH, which includes KLNA, are included for the period from May 31, 2022 through December 31, 2022. The results of the Company’s previous 49% ownership interest in KLNA and 19% ownership interest in KLH are included for the period from January 1, 2022 through May 30, 2022. The Company’s retail operations segment reports on a 52/53 week fiscal year. For fiscal 2024 and 2023, the three and nine-month periods for the retail operations segment were each 13-week and 39-week periods, respectively, and ended on October 28, 2023 and October 29, 2022, respectively.

The results for the three and nine months ended October 31, 2023 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of 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, 2023 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.

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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 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 October 31, 2023, October 31, 2022 and January 31, 2023 were:

October 31, 2023

    

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

880,827

$

806

$

881,633

Allowance for doubtful accounts

(18,349)

(63)

(18,412)

Accounts receivable, net

$

862,478

$

743

$

863,221

October 31, 2022

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

898,383

$

1,010

$

899,393

Allowance for doubtful accounts

(18,192)

(66)

(18,258)

Accounts receivable, net

$

880,191

$

944

$

881,135

January 31, 2023

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

692,033

$

1,227

$

693,260

Allowance for doubtful accounts

(18,237)

(60)

(18,297)

Accounts receivable, net

$

673,796

$

1,167

$

674,963

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, 2023

$

(18,237)

$

(60)

$

(18,297)

Provision for credit losses, net

(115)

(3)

(118)

Accounts written off as uncollectible

3

3

Balance as of October 31, 2023

$

(18,349)

$

(63)

$

(18,412)

Balance as of January 31, 2022

$

(17,307)

$

(84)

$

(17,391)

Provision for credit losses, net

(935)

18

(917)

Accounts written off as uncollectible

50

50

Balance as of October 31, 2022

$

(18,192)

$

(66)

$

(18,258)

Balance as of January 31, 2022

$

(17,307)

$

(84)

$

(17,391)

Provision for credit losses, net

(1,002)

24

(978)

Accounts written off as uncollectible

72

72

Balance as of January 31, 2023

$

(18,237)

$

(60)

$

(18,297)

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 $15.6 million, $17.1 million and $19.2 million as of October 31, 2023, October 31, 2022 and January 31, 2023, 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 $7.9 million, $6.5 million and $6.6 million at October 31, 2023, October 31, 2022 and January 31, 2023, respectively. 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

    

October 31,

October 31,

January 31,

    

October 31,

October 31,

January 31,

Financial Instrument

Level

2023

2022

2023

2023

2022

2023

(In thousands)

Secured Notes

1

$

400,000

$

400,000

$

400,000

$

396,340

$

379,000

$

380,000

Revolving credit facility

2

340,235

80,087

340,235

80,087

Note issued to LVMH

3

49,787

119,415

121,202

49,350

118,173

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