Katherine Ziegler/Digital Vision via Getty Images
Elevator pitch
G-III CLOTHING GROUP LIMITED (NASDAQ:GII) The stock is assigned an investment grade rating.
My previous write-up dated November 13, 2023 focused on previewing G-III Apparel’s financial performance during the second half of fiscal year 2024 (January 31). Present The article evaluates GIII’s recent results and its most recent investments.
I maintain a Hold rating on G-III Apparel, considering the stock’s key positives and negatives. On the one hand, GIII’s below-expected first-quarter performance and second-quarter sales guidance created uncertainty about the company’s ability to achieve its full-year financial goals. On the other hand, G-III Apparel recently invested in European company All We Wear Group, or AWWG, and this could help GIII expand further in this geographic region.
Actual first-quarter revenue and second-quarter guidance missed expectations
G-III Apparel has released the company’s first quarter fiscal year 2025 results announcement On June 6 before the market opened, GIII shares fell -13.5% At the end of the trading day. Investors will likely be disappointed with GIII’s first-quarter bottom line and second-quarter financial guidance, despite the company’s first-quarter win.
GIII reported common EPS of $0.12 for the first quarter of fiscal 2025, which was significantly better than the Wall Street consensus estimate of -$0.03 (Source: Standard & Poor’s Capital IQ) Non-GAAP adjusted net loss per share. The company credited “improvements in gross margin ratio and efficiencies in SG&A (selling, general and administrative)” for the Q1 fiscal 2025 earnings call.
But G-III Apparel’s better-than-expected performance was overshadowed by the company’s failure in the first quarter of fiscal 2025 and its disappointing guidance in the second quarter.
The company’s top line rose marginally +0.5% year-over-year to $609.7 million in Q1 FY2025. GIII’s actual Q1 revenues were below the sell-side consensus sales forecast of $616.7 million (Source: Standard & Poor’s Capital IQ) and the company’s previous guidance of $615.0 million.
In the company’s latest quarterly analyst briefing, GIII noted that “transit times” have “changed slightly” due to “conservative retailers gauging the inventory levels they want to have at the end of the quarter.” Management believes that retailers’ inventory optimization efforts resulted in actual G-III sales in the first quarter being lower than consensus and management guidance.
Concurrent with the release of its first-quarter results, G-III Apparel also released its second-quarter financial guidance. Specifically, GIII guided for revenue of $650.0 million and earnings per common share in the range of $0.22 – $0.32 for Q2 FY 2025. The company’s top-line guidance for Q2 FY 2025 was -2.2% lower than consensus analyst forecasts. on $664.6 million, while the upper end of Q2 guidance ($0.32) remains -3.0% below the consensus market estimate of $0.33.
By comparison, GIII’s full-year fiscal 2025 sales guidance was $3,200 million. This means that G-III Apparel expects its revenues could grow significantly by +54.0% HoH from $1,260 million (sum of actual Q1 sales and Q2 guidance) in the first half of fiscal year 2025 to $1,940 million in the second half of the year. Finance 2025.
One analyst said in the latest analyst call that the current “evidence” points to a “very significant slope” in the “second half.” In response, G-III Apparel noted that its portfolio of brands “shows a great deal of strength” and emphasized that “all new launches and sales greatly support our strategy and outlook.”
In short, the market has doubts about GIII’s ability to meet its full-year fiscal 2025 guidance. One factor is that both the actual first-quarter top line and second-quarter revenue guidance came in below expectations. Another factor is that the full-year forecast indicates that G-III Apparel’s sales will be heavily favored in the second half of this fiscal year. As such, it’s easy to understand why GIII’s share price has underperformed following the results.
The latest investment will help strengthen GIII’s presence in Europe
On the same day that Q1 FY2025 results were released, G-III Apparel also made another important announcement with positive readings for its long-term growth outlook.
GIII revealed in a media release dated June 6, 2024 that it had purchased a 12% ownership stake in All We Wear Group, or AWWG, to “drive growth and European expansion” for “owned brands” such as “DKNY, Donna Karan and Karl Lagerfeld.” G-III Apparel noted in its Q1 analyst conference that “we will look to expand ownership of (AWWG) over time” and emphasized that it has “the ability to buy everything (i.e. 100% ownership)” in the future. In this media release, AWWG is referred to as a “global fashion group” with “headquarters in Madrid, Spain and design offices in London and Nice.”
In the last fiscal year or FY2024, G-III Apparel derived 77.5% and 22.5% of its top line from the US and international markets, respectively. There is clearly room for GIII to grow its revenue contribution from overseas markets outside the US, such as Europe, given the company’s current sales mix. The company’s recent investment in AWWG could be the key driver of its plans to increase its penetration into European markets.
In its first-quarter fiscal 2025 earnings call, GIII revealed that it has “about $400 million of European distribution between Karl Lagerfeld, Vilebrequin, DKNY (brands).” In comparison, AWWG’s current top line is relatively higher at $650 million. For another reference, G-III Apparel said in its latest quarterly analyst call that it aims to increase total sales contributed by its owned brands from $1.8 billion now to $5 billion in the long term.
These above figures provide support for G-III Apparel’s positive long-term growth outlook, which could be reinforced by the recent investment in AWWG.
Final thoughts
The takeaway from GIII’s most recent disclosures has been mixed, and that translates into a Hold rating for the stock. I have a positive opinion on G-III Apparel’s acquisition of AWWG stake which could help the company grow in the European market. On the flip side, the company’s first-quarter top line and second-quarter guidance fell short of market expectations, which had negative readings for its full-year outlook.
Also, the stock now trades at 7.5 times forward FY2025 EPS based on the midpoint of its full-year benchmark EPS guidance of $3.63. This is very close to the normal three-year average P/E for the next twelve months of 7.4 times (Source: Standard & Poor’s Capital IQ). As such, G-III Apparel appears to be reasonably valued based on a historical valuation comparison.
