By  on September 4, 2014

Integration difficulties with the G.H. Bass brand, acquired from PVH Corp. last year, didn’t stop G-III Apparel Group Ltd. from posting improved and better-than-expected second-quarter results, led by its wholesale operations and registering a 4.5 percent increase in its shares on Wednesday.

With its outerwear and dress businesses generating strong numbers and expectations for a fairly fast turnaround at Bass, investors sent shares up $3.82 to close at $88 after hitting a 52-week high of $92 in midday trading.

Top- and bottom-line results for the quarter ended July 31 easily exceeded analysts’ consensus estimates.

In the quarter, net income expanded 73.6 percent, to $6.2 million, or 29 cents a diluted share, from $3.6 million, or 17 cents, a year ago. Elevated by the addition of the Bass brand and its retail network last November, sales rose 39.4 percent, to $424 million from $304.2 million.

On average, analysts expected EPS of 16 cents on revenues of $391 million.

Gross margin expanded to 34.9 percent of sales from 32.7 percent, with the gross margin for licensed products up to 27.3 percent from 27.1 percent and for non-licensed product up to 37.8 percent from 34.9 percent. Retail gross margin withered to 45.6 percent of sales from 49 percent because of higher markdowns at its Wilsons stores and historically lower gross margins at Bass units, which are predominantly in outlet centers.

The softness at Wilsons was attributed primarily to weakness in mall units.

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Morris Goldfarb, chairman, president and chief executive officer of the New York-based company, commented, “In spite of losses related to the transition and repositioning of our recently acquired G.H. Bass business, we were able to show higher overall profits due to strong shipments in our licensed and non-licensed businesses. There were strong performances by a number of Calvin Klein divisions and several of our outerwear and dress businesses, all of which enabled us to exceed our forecast for the second quarter.”

During a conference call to discuss the results, Goldfarb acknowledged that some of the difficulties with the Bass brand were self-inflicted.

“I might add that, really, for the last week or 10 days, we’re seeing improvements in Bass as our new product hits the stores,” he said. “I think we’ve done some amazing things in a short period of time. The blunder that we made — I mean, I’ll call it a blunder — is that we exited the transitional services that PVH was doing for us. We thought that it was time for us to move on and integrate it into Wilsons, and we could’ve used another three months.”

Neal Nackman, chief financial officer, indicated that Bass would hurt profits for the year but said management at G-III was “still very confident and hopeful” of seeing top-line improvement and an operating profit for the business in the fourth quarter.

Goldfarb sounded further optimistic notes on the success the company has had with the introduction of luggage, other travel products and small leather goods in the Bass stores. Additionally, he said recent initiatives — such as the licensing back of men’s wear to PVH and its placement of the line in 300 Macy’s doors, the licensing of Overland for footwear and plans for an in-house collection for women’s wear — should bolster the brand’s performance.

Speaking of the Bass stores, he added, “Today, if it doesn’t have the Bass DNA, the marching orders are: just don’t buy it. The apparel is consistent with the brand image. The footwear will be consistent. And the accessories, most of all, will be appropriate for Bass.”

Calling G-III “one of the best-positioned apparel plays in our universe,” Wunderlich Securities analyst Eric Beder reiterated his “buy” rating on the stock and boosted his target price to $100 from $92.

“Early shipments of outerwear to leading department stores represent a stronger commitment than in prior years to the category, as colder winters the last two years drove earlier purchases of outerwear but not material increases in units,” the analyst wrote in a note to clients. “We believe this year, department stores have become more aggressive in ordering outerwear, which will drive [second-half] upside.”

Third-quarter sales are now expected to ascend to approximately $805 million, above the $791.5 million expected by analysts, on average. EPS for the period is expected to land between $2.75 and $2.90, including 21 cents of dilution to reflect the company’s recent stock offering. Without the dilution, adjusted EPS would be $2.96 to $3.11, below the earlier $3.14 estimate of analysts.

In the first half, net income was up 59.8 percent, to $7.5 million, or 35 cents a diluted share, while revenues grew 37 percent, to $790.2 million.

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