New York-based G-III Apparel Group, Ltd (GIII) posted earnings per share of 8 cents in the second quarter of fiscal 2012, missing the Zacks Consensus Estimate of 20 cents and the year-ago quarter earnings of 15 cents per share. The lower-than-expected result was mainly due to margin contraction.
G-III Apparel’s net sales surged 21.7% year over year in the quarter to $230 million. Sales growth was aided by improved performance of wholesale licensed apparel (up 22%), wholesale non-licensed segment (up 24.5%) and retail operations (up 19%).
The robust wholesale licensed apparel sales were driven by higher sales of Calvin Klein products, whereas the wholesale non-licensed segment benefited from an increase in private label outerwear sales. Retail sales surged on the back of unit growth as well as comp store increase of 11% in the quarter.
During the quarter, G-III Apparel’s gross margin fell 370 basis points (bps) to 28.5%, as the company allowed discounts to customers due to soft economic conditions. Margin at wholesale license segment, wholesale non-licensed segment and retail operations fell 490 bps to 25.5%, 150 bps to 24.7% and 30 bps to 45.1%, respectively.
Financials
At quarter end, G-III Apparel had cash of $8.6 million and shareholders’ equity of $309.7 million.
Outlook
For the third quarter of 2012, G-III expects earnings per share in the range of $2.25–$2.35 and net sales of $500 million.
Based on second quarter results, the company trimmed its earnings guidance for fiscal 2012. G-III now expects earnings per share in the range of $3.05 to $3.15, down from the earlier-guided range of $3.15 to $3.25 per share. However, the company has raised its sales outlook to $1.25 billion from its previous forecast of $1.20 billion.
Our Take
G-III, the designer, manufacturer, and distributor of various women’s and men’s apparels in the United States, remains optimistic regarding the second half of 2012, based on unit growth and strong demand for its products. However, we expect the estimates to go down in the coming days as the company reported weak results and also trimmed its earnings outlook. The Zacks Consensus Estimates for 2012 and 2013 are pegged at $3.08 and $3.57, respectively.
G-III currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. We are also maintaining our long-term Underperform recommendation on the stock. G-III peers include Polo Ralph Lauren Corp. (RL) and CROCS Inc. (CROX).
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