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G-III (GIII) Research Report: Q1 CY2024 Update


Full Report / June 06, 2024

Fashion conglomerate G-III (NASDAQ:GIII) missed analysts' expectations in Q1 CY2024, with revenue flat year on year at $609.7 million. The company also expects next quarter's revenue to be around $659.8 million, slightly below analysts' estimates. It made a non-GAAP profit of $0.12 per share, down from its profit of $0.13 per share in the same quarter last year.

G-III (GIII) Q1 CY2024 Highlights:

  • Revenue: $609.7 million vs analyst estimates of $616.7 million (1.1% miss)
  • EPS (non-GAAP): $0.12 vs analyst estimates of -$0.03 ($0.15 beat)
  • Revenue Guidance for Q2 CY2024 is $659.8 million at the midpoint, below analyst estimates of $664.6 million
  • The company reconfirmed its revenue guidance for the full year of $3.2 billion at the midpoint
  • EPS (non-GAAP) Guidance for Q2 CY2024 is $0.27 at the midpoint, below analyst estimates of $0.33
  • Gross Margin (GAAP): 42.5%, up from 41.2% in the same quarter last year
  • Market Capitalization: $1.41 billion

Founded as a small leather goods business, G-III (NASDAQ:GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.

G-III's portfolio of licensed and owned brands caters to both the luxury and mass market segments. The company holds licenses for household names such as Calvin Klein, Tommy Hilfiger, Levi's, and Champion, allowing it to produce and sell products under these esteemed labels. G-III also owns brands such as DKNY, Donna Karan, Vilebrequin, G.H. Bass, and Andrew Marc.

The G-III customer is the average consumer who seeks a combination of style and value. These customers tend to value name brands and have been conditioned to shop for items that are on sale or offered at a promotional price.

G-III leverages an extensive distribution network to reach its customers, including department stores, specialty retailers, online retailers, and its own branded brick-and-mortar stores. This multi-channel distribution strategy enables G-III to sell its products globally.

Apparel, Accessories and Luxury Goods

Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.

G-III’s primary competitors include Ralph Lauren (NYSE:RL), VF Corp (NYSE:VFC), owner of The North Face and Timberland, and Capri Holdings (NYSE:CPRI), owner of Michael Kors and Versace.

Sales Growth

Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. G-III had weak demand over the last five years as its sales were flat, a poor baseline for our evaluation of quality. G-III Total Revenue

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. G-III's annualized revenue growth of 2.8% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, G-III's $609.7 million of revenue was flat year on year, falling short of Wall Street's estimates. For next quarter, the company is guiding for flat year on year revenue of $659.8 million, slowing from the 9% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 3.7% over the next 12 months, an acceleration from this quarter.

Operating Margin

G-III was profitable over the last two years but held back by its large expense base. It demonstrated weak profitability for a consumer discretionary business, producing an average operating margin of 2.1%.

G-III Operating Margin (GAAP)

In Q1, G-III generated an operating profit margin of 2.2%, in line with the same quarter last year. This indicates the company's overall cost structure has been relatively stable. Looking ahead, Wall Street expects G-III to become less profitable. Analysts are expecting the company’s trailing 12 month operating margin of 9.1% to decline to 7.9% in the coming year.

EPS

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.

G-III's EPS grew at an unimpressive 7% compounded annual growth rate over the last five years, higher than its flat revenue. However, this alone doesn't tell us much about its day-to-day operations because its operating margin didn't expand.

G-III EPS (Adjusted)

We can delve even further into G-III's earnings performance. A five-year view shows that G-III has repurchased its stock, shrinking its share count by 6.1%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q1, G-III reported EPS at $0.12, in line with the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects G-III to perform poorly. Analysts are projecting its EPS of $4.06 in the last year to shrink by 13.8% to $3.50.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was its growth capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money it has raised (debt and equity).

G-III's five-year average ROIC was 7.9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+. Its returns suggest it was mediocre at investing in profitable business initiatives.

G-III Return On Invested Capital

The trend in its ROIC, however, is often what surprises the market and moves the stock price. Unfortunately, G-III's ROIC averaged 5.5 percentage point decreases each year over the last few years. Paired with its already low returns, these declines suggest the company's profitable business opportunities are few and far between.

Balance Sheet Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly.

G-III is a well-capitalized company with $508.4 million of cash and $426.4 million of debt, meaning it could pay back all its debt tomorrow and still have $82.08 million of cash on its balance sheet. This net cash position gives it the freedom to raise more debt, return capital to shareholders, or invest in growth initiatives.

Key Takeaways from G-III's Q1 Results

We were impressed that G-III exceeded analysts' EPS expectations this quarter. We were also excited its operating margin outperformed Wall Street's estimates. On the other hand, its earnings forecast for next quarter missed and its revenue fell short of Wall Street's estimates. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is up 3.5% after reporting and currently trades at $32.33 per share.

Is Now The Time?

G-III may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of G-III, we'll be cheering from the sidelines. Its revenue was flat over the last five years, but at least growth is expected to increase in the short term. On top of that, its projected EPS for the next year is lacking, and its operating margins reveal poor profitability compared to other consumer discretionary companies.

G-III's price-to-earnings ratio based on the next 12 months is 8.9x. While there are some things to like about G-III and its valuation is reasonable, we think there are better opportunities elsewhere in the market.

Wall Street analysts covering the company had a one-year price target of $27.60 right before these results (compared to the current share price of $32.33).

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released, and especially for companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.

Is Now The Time?

G-III may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of G-III, we'll be cheering from the sidelines. Its revenue was flat over the last five years, but at least growth is expected to increase in the short term. On top of that, its projected EPS for the next year is lacking, and its operating margins reveal poor profitability compared to other consumer discretionary companies.

G-III's price-to-earnings ratio based on the next 12 months is 8.9x. While there are some things to like about G-III and its valuation is reasonable, we think there are better opportunities elsewhere in the market right now.

Wall Street analysts covering the company had a one-year price target of $27.60 per share right before these results (compared to the current share price of $32.33).

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released, and especially for companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.