Does This Apparel Retailer Look Fashionable Enough?
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We have seen many apparel retailers posting great results in this time of impending crisis. One of them was lifestyle retailer, Ralph Lauren (NYSE: RL), 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 (NASDAQ: GIII) being one of them. The company, which manufactures a range of apparel for women as well as accessories, posted its first quarter results beating Street’s top line expectations. But rising costs and widening losses post serious concerns to the company’s bottom line. Let’s take a look.
Into the Numbers
Though top line for the quarter jumped 16.5% to $229.4 million from last year, it failed to trickle down to the bottom line. The company reported a loss of 4 cents per share which is a penny higher than the year ago quarter. 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 (NYSE: PVH) Tommy Hilfiger and Calvin Klein which attracted customers at the stores. 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. With everything looking fine with the company what went wrong this quarter?
The Key Pullback
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 was washed away widening the year ago loss in spite of strong sales during the quarter. Both selling & general expenses and cost of manufacturing the products moved north taking a toll on the net income. However, the most interesting part is that the company has maintained its outlook for the year of earning between $2.62 and $2.72 per share. The outerwear retailer expects the costs to lower down increasing profits for the company.
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. Until and unless G-III outlines some concrete plans to get back into the black, it would be prudent to watch it from the sidelines.
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