It has been about a month since the last earnings report for G-III Apparel Group (GIII). Shares have lost about 12.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is G-III Apparel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
G-III Apparel Q2 Earnings & Sales Beat, Raised View
G-III Apparel Group, Ltd. delivered robust second-quarter fiscal 2019 results, with the top and bottom lines increasing on a year-on-year basis and also surpassing the Zacks Consensus Estimate. This marks the company's sixth straight bottom-line beat, while sales topped estimates for the third time in a row. Its quarterly performance was backed by sturdy wholesale business. Further, management provided an encouraging view for fiscal 2019 as well as the third quarter. Results in Detail
Adjusted earnings came in at 22 cents per share, which surpassed the consensus mark of 2 cents. This compares favorably with the prior-year quarter's adjusted loss of 15 cents per share.
Further, net sales of $624.7 million grew 16.1% year over year. Sales also surpassed the Zacks Consensus Estimate of $590.7 million. During the quarter, the top line mainly benefited from stellar show in wholesale operations, while retail remained almost flat. Further, the quarter gained from increased same-store sales at Wilsons and DKNY, while comps at G. H. Bass stores registered a decline. The company's e-commerce direct to-consumer business grew 20% during the quarter.
Gross profit rose 14% to reach $231.5 million. However, gross margin of 37.1% contracted 60 basis points. The decline can be attributable to weak gross margin recorded in the retail segment, partially countered by improved wholesale gross margin.
The quarter witnessed an increase of 1.6% in SG&A costs, which amounted to nearly $198.9 million. This was majorly driven by enhanced employee costs, stemming from bonuses and salaries.
Further, operating profit amounted to $23.2 million, marking a substantial improvement from the prior-year's operating loss of $3.6 million. Segment Performances
Net sales in the wholesale segment came in at $545 million, reflecting an increase of almost 16.4%. The segment gained from broad-based strength, led by robust brand performances. Significant among them were Calvin Klein, Tommy Hilfiger and Karl Lagerfeld.
Retail segment net sales came in at $106 million, remaining flat with the prior-year period. Stiff competition negatively impacted the performance of the segment. Other Financial Details
GIII-Apparel exited the second quarter of fiscal 2019 with cash and cash equivalents of $42.3 million and long-term debt of $494.2 million. Total stockholders' equity came in at $1,087.2 million. Guidance & Management Plans
Led by sturdy results in the second quarter, management raised its view for fiscal 2019. The company now expects net sales to be close to $3.06 billion versus the earlier view of approximately $2.97 billion. Also, management now expects adjusted earnings in the range of $2.52-$2.62 per share versus prior projection of $2.27-$2.37.
Apart from this, management also provided third-quarter guidance, which is expected to depict quite an improvement from the prior-year quarter. For the third quarter, management expects net sales of $1.08 billion compared with $1.02 billion a year ago. Also, management expects the bottom line in the range of $1.72-$1.82 per share compared with the year-ago adjusted earnings of $1.67.
Notably, the company expects wholesale outerwear businesses to perform well in the upcoming quarters, and remains well placed to exploit opportunities therein. Also, in a bid to improve retail business, the company is set to bring in new products and strengthen its ties with retailers, especially those in Europe. It is also on track with retail store closures. In this respect, GIII-Apparel plans to shutter approximately 105 Wilsons and Bass retail stores by the end of this year. Markedly, management expects low single-digit comps in the retail segment, including Wilsons and Bass.
Apart from these, GIII-Apparel remains on track with the process of bolstering brands across channels, with new launches, improved marketing strategies and consumer reach. It also plans to make efficient utilization of digital and social media platforms.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
Currently, G-III Apparel has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
G-III Apparel has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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