Why This Retailer is Looking Increasingly Attractive
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Customers are the driving force behind trends in the retail industry. If customers splurge, retailers strategize to expand their offerings as well as their market presence. On the other hand, if they limit their purchases, companies start thinking of other things such as promotions to lure customers, innovating new products, or even closing stores. Hence, everything revolves around shoppers’ buying habits.
Some time back, retail industry players were having a tough time keeping up with volume since rising raw material costs and the resultant price hikes were scaring away the customers. This was especially the case with the budget conscious customers who were trying to spend every penny of their hard earned money judiciously. Now, a better job environment and slow economic recovery is turning the retail space into a different place entirely. Growth in retail numbers indicate that people have started becoming lenient with their spending habits. However, this does not mean that retailers can sit back and relax. This calls for even more active industry where each player will have to lure customers by way of innovation and diversification.
A perfect example in this case is G-III Apparel (NASDAQ: GIII), which was hit by the rising input prices a quarter ago in spite of a strong demand for its products. However, moderation of input prices and growing interests of customers have finally brought this player into the limelight. Its second quarter results posted recently were far ahead of analysts’ expectations, sending its shares higher.
A Brief Look at the Quarter
Revenue surged to $251.5 million, registering growth of 9.4% over last year. But this time, the increase in top line had a multiplying effect on the bottom line which grew a whopping 62%. The growth in revenue was largely driven by increased customer traffic in its retail stores and remarkable growth in its wholesale operations. Efficient cost cutting measures coupled with moderating cost inflation drove adjusted earnings north. This was affirmed by the widening of gross margins which grew 130 basis points to 29.8%.
Going Deeper…
The largest and the most attractive segment for G-III is its Wholesale Licensed business that constitutes more than 65% of its revenue. This segment has been the key driver of its results from a long time since it has a number of successful brands under its stature. It includes PVH Corp’s (NYSE: PVH) well-known brands such as Calvin Klein and Tommy Hilfiger and Guess? (NYSE: GES). Demand for these brands helps the retailer grow revenue. Guess' license was won through by Winlit Group's acquisition by G-III Apparel in July 2005. Since then it has been a major contributor in its revenue. Guess’ large geographic presence and trendy collections attract customers’ attention. Also, Calvin Klein is one of the popular brands of PVH which fetches great licensing revenue. G-III accounts for 14% of Calvin's licensing revenue for PVH.
Moreover, G-III is expanding its geographical footprint which will enable it to tap new markets, especially the emerging markets which have huge potential. It has also partnered with PVH's Calvin Klein brand to expand its footprint in Hong Kong and China. With one performance store already in place, G-III plans to open a large number of stores by the end of the year.
However, the women retailer’s licensing is not limited to such brands. It has licensing agreements with various sport leagues which is largely beneficial when there are championships held.
Even in the retail segment, G-III is performing well, especially the Wilson Leather outlets. The company intends to expand its retail presence by opening more stores in the months to come.
The Strategic Front…
Apart from the growth strategies it already has for its existing business, G-III Apparel has expanded its reach into a new market. It acquired Vilebrequin which specializes in premium resort-wear. Since G-III specializes in women’s apparel and accessories the acquisition will give exposure to the men’s luxury market. G-III intends to expand the business further once it is integrated well into its business. This new market can help the retailer grow enormously.
Another point to look forward to is the spring season which is usually the best time for the apparel retailer. The company has been working hard to have an all new spring collection for the season which is expected to overwhelm the shoppers.
The acquisition of Vilebrequin and the current peak season has enabled G-III to revise its guidance upwards.
Conclusive Thoughts
The biggest strength of G-III is its ability to adapt to the trends of the market. It has been doing well owing to its dynamic nature. It fought the times when consumers were not ready to spend much and then the times of rising commodity costs efficiently. And it is now ready to flood the market with its new collection along with a new market to cater to. Even its expansion plans in both the wholesale and the retail segment can prove to be beneficial for the retailer in the long run. Moreover, its bright outlook makes me quite hopeful about the company’s prospects. Investors should give this retailer a serious thought.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Guess?. Motley Fool newsletter services recommend Guess?. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
