It has been about a month since the last earnings report for G-III Apparel Group (GIII). Shares have lost about 1.5% 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 the most recent earnings report in order to get a better handle on the important drivers.
G-III Apparel's Q4 Earnings Beat Estimates, Sales Down Y/Y
G-III Apparel posted better-than-expected earnings in fourth-quarter fiscal 2021. Notably, the quarter marked the third straight earnings beat. Also, the company’s digital business continued to exhibit strength. The company’s own websites generated solid results for both DKNY and Karl Lagerfeld Paris, with comparable sales growth of about 40%.
Q4 in Detail
G-III Apparel delivered adjusted earnings per share of 47 cents that surpassed the Zacks Consensus Estimate of 23 cents. However, the figure suggests a decline of 37.3% from 75 cents earned in the year-ago period. We note that the company delivered GAAP earnings of 30 cents a share, inclusive of a net loss of 17 cents a share from the Wilsons Leather and G.H. Bass store operations. It had recorded a net loss of 33 cents a share in the year-ago comparable period.
Markedly, G-III Apparel has completed the restructuring of the retail segment, thereby permanently shutting the Wilsons Leather and G.H. Bass stores.
Net sales plunged 30.3% year over year to $526.2 million and lagged the Zacks Consensus Estimate of $534 million, after reporting a beat in the previous quarter. Soft top-line performance can be attributed to a decline in sales at both the wholesale and retail divisions.
Moreover, gross profit declined 25.3% year over year to $187.6 million. However, gross margin of 35.6% increased 230 basis points (bps) from the prior-year period, mainly driven by a higher gross margin in the Wholesale segment, partly offset by a contraction in the metric at the Retail unit.
However, SG&A expenses declined nearly 20% year over year to $151 million on cost-control efforts undertaken amid the pandemic. We note that the company has streamlined the headcount in its global wholesale operations.
Further, the company reported operating income of $27.5 million, which decreased about 14.9% from the year-ago quarter.
Net sales at the Wholesale segment were $488 million, down roughly 23% year over year. However, the segment’s gross margin rose 550 bps to 35.5% from the year-ago quarter, benefiting from the reversals of increased royalties, which were earlier accrued on favorable negotiations with the licensors.
Net sales at the Retail segment totaled $44 million, down nearly 66% from the prior-year quarter’s reported figure. The metric included $15 million of sales for the Wilsons Leather and G.H Bass stores compared to $86 million in the prior-year period. The segment’s gross margin also contracted to 32.2% from 45.9% in the year-ago quarter, mainly due to the final stages of store liquidations for Wilsons Leather and G.H Bass outlets.
G-III Apparel ended fourth-quarter fiscal 2021 with cash and cash equivalents of $351.9 million and long-term debt of $512.4 million. Total stockholders’ equity was $1,336.2 million. Further, inventories declined nearly 25% to $416.5 million at the end of the reported quarter. At the quarter-end, it had available cash under its credit agreement of about $825 million.
Moreover, the company ended fiscal 2021 with an improved net debt position of $160 million versus $200 million at the end of the prior year.
Due to the ongoing pandemic-related uncertainties, management issued guidance for the first quarter of fiscal 2022 only. For the fiscal first quarter, the company projects net sales of roughly $460 million, which suggests an increase of 13.6% from $405.1 million in the year-ago quarter . Excluding sales of $19 million from the shuttered Wilsons Leather and G.H. Bass outlets in the first quarter of fiscal 2021, net sales would have been about 19% higher. For the fiscal first quarter, gross margins are likely to significantly improve year over year.
Moreover, GAAP net income is anticipated in a band of 5-15 cents per share against GAAP net loss of 82 cents recorded in the year-ago period.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 285.71% due to these changes.
Currently, G-III Apparel has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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