SEC Filing | GIII Apparel Group

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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


☐	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.

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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

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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.

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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