Higher sales and margins helped G-III Apparel Group, Ltd. GIII to continue with its positive earnings surprise streak for the seventh consecutive quarter. The company’s third-quarter fiscal 2016 adjusted earnings of $1.85 per share surpassed the Zacks Consensus Estimate of $1.78 and surged 20% from the prior-year quarter figure of $1.54.
In the trailing four quarters (including the quarter under review), the stock outperformed the Zacks Consensus Estimate by an average of 43.2%. Shares were up 9.8% in the trading session yesterday. Further, we note that earnings exceeded the company’s own guidance range of $1.78–$1.83 per share as well.
On a reported basis, including one-time items, quarterly earnings came in at $1.87 per share, up 6% year over year.
The company reported net sales of $909.9 million, up 12% year over year, but short of the Zacks Consensus Estimate of $916 million, after registering revenue beat in the preceding two quarters. Net sales also came in below the company’s own projection of $920 million. The company witnessed soft sales of outerwear, but hinted that the performance of its dress, sportswear and handbag businesses remained strong.
Sales continue to get a boost from the acquisition of G.H. Bass & Co. Improved comparable-store sales at G.H. Bass stores, coupled with G-III Apparel’s solid wholesale business, led to the year-over-year increase in net sales. The Calvin Klein brand, together with the Ivanka Trump and Vince Camuto brands, contributed significantly to sales. The company is set to introduce a new line of dresses for women, in collaboration with Tommy Hilfiger, which is owned by PVH Corp. PVH.
Gross profit for the reported quarter escalated 14% to $337.1 million on the back of higher sales, while gross margin expanded 70 basis points (bps) to 37%. Additionally, operating profit advanced 23% to $139.4 million, whereas operating margin rose 140 bps to 15.3%.
Balance Sheet
G-III Apparel ended the quarter with cash balance of $54.3 million, total assets worth $1,416.5 million, short-term revolving debt of $171.8 million, and stockholders’ equity of approximately $885 million. The company’s board of directors increased the share buyback program to 5,000,000 shares from 3,750,000 shares.
Capital expenditures for the quarter came in at $34 million. The company projects capital expenditures of about $40 million for the full fiscal year, to be allocated toward leasehold improvements for Wilson stores, G.H. Bass, and Vilebrequin stores as well as fixturing costs at department stores.
Fiscal 2016 Guidance
Management trimmed its earnings forecast for fiscal 2016 on the expectation of sluggish consumer spending and lower traffic in the final quarter. Earnings per share are now envisioned to be in the band of $2.67–$2.82, down from $2.78–$2.88 projected earlier. On an adjusted basis, management expects earnings between $2.65 and $2.80 per share, reflecting an increase of 17%–24% from fiscal 2015. However, the company maintained its net sales guidance at $2.40 billion for fiscal 2016.
Adjusted EBITDA is now expected to be in the range of $227–$238 million, down from the prior projection of $237—$245 million.
Zacks Rank
G-III Apparel currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Abercrombie & Fitch Co. ANF, flaunting a Zacks Rank #1 (Strong Buy) and American Eagle Outfitters, Inc. AEO, carrying a Zacks Rank #2 (Buy).
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