G-III Apparel Group Ltd.’s fourth-quarter bottom line was hurt by record warm weather last fall and winter, which affected outerwear sales. As a result, the company delivered earnings per share of 17 cents.
Analysts were expecting 42 cents, and traders were harsh on the company’s stock — sending shares down 19.4 percent to close at $44.52.
However, Morris Goldfarb, chairman, chief executive officer and president, described the fiscal year period as “a very strong year for us, although we were disappointed by our wholesale and retail outerwear business, which was heavily impacted by the warmest winter ever recorded.”
“That said, we had excellent performances from our non-outerwear Calvin Klein businesses, as well as our dress and team sports businesses,” the ceo explained. “We have significantly expanded our relationship with the Tommy Hilfiger brand and increased our financial investment and partnership with the Karl Lagerfeld brand. We will be making significant investments in these brands going forward. Our organization is energized by the opportunities in front of us and excited to take advantage of our opportunities in fiscal 2017.”
And on a call with investors, Goldfarb said longer term “we believe Tommy Hilfiger and Karl Lagerfeld represents a $1.5 billion annual revenue opportunity for G-III.”
The ceo told investors that the company’s “success in the sportswear-performance business has primarily been driven by Calvin Klein. We are now poised for major growth expansion and diversification across a number of brands including what we see as a tremendous opportunity with both Tommy Hilfiger and Karl Lagerfeld. We think sportswear and performance is likely to be our largest as well as our fastest-growing business.”
For the quarter ended Jan. 31, net income fell 64 percent to $7.96 million from $22.2 million, or 48 cents, in the same period last year as sales rose 3 percent to $527.4 million from $514.3 million.
For the year-end period, net sales rose 11 percent to $2.34 billion from $2.12 billion in the prior year. Net income for the year rose 3.5 percent to $114.3 million, or $2.46 a share, from $110.4 million, or $2.48, in the prior year. “The full-year sales growth was driven by strong performances from many of the company’s wholesale businesses, as well as by growth in G.H. Bass & Co. comparable-store sales,” the company said in its report, adding that on an adjusted basis, pretax earnings gained 13 percent to $210.1 million from $186.6 million.
For the quarter, gross margins fell 178 basis points to 33.9 percent despite the sales gain, which the company said “was the result of strength in many of the company’s wholesale businesses and G.H. Bass retail, offset in part by lower sales and higher promotion costs with respect to outerwear in our wholesale and Wilsons Leather retail businesses.”
“The weaker outerwear sales in the fourth quarter are the primary reason that our sales and profits for the full year were lower than previously forecast,” the company noted.
On the investors’ call, Goldfarb said the fourth quarter was “tough at retail” and in regards to outerwear, the ceo said the company “worked with our customers effectively and collaboratively and ended the season with manageable levels of inventory both for them and for us.”
“Even so, we are planning prudently and have a reduced outerwear plan for fiscal 2017 versus fiscal 2016,” Goldfarb added. “We see strong growth in every other categories this coming year and believe it is prudent to protect the expectation of relatively secure, diversified growth in sales and operating profit from the kind of seasonal risk we’ve just experienced.”
By way of outlook, the company issued sales and earnings guidance: for the 2017 fiscal year, sales are expected to be $2.56 billion with net income ranging between $120 million and $125 million — or $2.55 and $2.65 a share.
For the first quarter of this year, net sales are expected to be about $475 million, with net income ranging between $100,000 to $2.4 million, which equals earnings per share that would be flat to five cents.