G-III Apparel's Gradual Improvement Makes It a Smart Bet

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Dec 09, 2014

We have seen many apparel retailers posting great results in tough economic situations. One of them was lifestyle retailer, Ralph Lauren (RL, Financial), which performed really well indicating that the industry has been recovering recently even after getting hit by cost inflation. But not all retailers can survive such headwinds, G-III Apparel (GIII, Financial) being one of them. The company, which manufactures a range of apparel for women as well as accessories, posted its results, beating the Street’s top line expectations. Let’s take a closer look.

The performance

Its top line for the quarter jumped 21.5% from last year, and its earnings improved 35%. If we dig deeper into the revenue, we find that G-III actually did well on this front since it witnessed strong growth in its retail segment driven by higher comparable store sales and higher volumes. The wholesale licensed business segment was the star performer for the company this quarter, surging 22.7% over year ago quarter.

This segment licenses established brands such as PVH Corp’s (PVH, Financial) Tommy Hilfiger and Calvin Klein, which attracted customers to its stores. The introduction of new dress lines and improved demand for brands such as Calvin Klein and Jessica Simpson helped the apparel licensed segment boost investor confidence in the company. The retailer wants to further increase stores during the year and is also planning to expand to China and Hong Kong.

Some concerns to watch

When most of the apparel retailers are trying to fight rising input costs with cotton costs giving them the hardest hit, GIII’s bottom line improved due to strong sales during the quarter. But, both selling and general expenses and cost of manufacturing the products moved north, which is not good news for the company. However, the most interesting part is that the company has maintained its outlook for the year of earnings of $4.33 per share. The outerwear retailer expects the costs to decline, leading to an increase in the profit in the long run.

Conclusion

The company looks strong and has been performing well. It has strong brands licensed in its kitty and has plans to expand its retail presence by opening more stores in the year. But with high material costs throwing its bottom line in jeopardy, investors might just be skeptical about the company’s prospects. But, on the whole, the company has been doing well, and investors should definitely consider investing in its for the long run.