G III APPAREL GROUP LTD /DE/ [GIII] Filings

10-Q 1 giii-20220430x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-18183

G-III APPAREL GROUP, LTD.

(Exact name of registrant as specified in its charter)


Delaware		41-1590959
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

512 Seventh Avenue, New York, New York		10018
(Address of principal executive offices)		(Zip Code)

(212) 403-0500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	GIII	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 3, 2022, there were 48,225,361 shares of issuer’s common stock, par value $0.01 per share, outstanding.

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TABLE OF CONTENTS

		Page No.
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets – April 30, 2022, April 30, 2021 and January 31,2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Income - For the Three Months Ended April 30, 2022 and 2021 (Unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity – April 30, 2022 and April 30, 2021 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows - For the Three Months Ended April 30, 2022 and 2021 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

Part II	OTHER INFORMATION
Item 1A.	Risk Factors	29
Item 6.	Exhibits	30

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	April 30,		April 30,		January 31,
	2022		2021		2022
	(Unaudited)		(Unaudited)
	(In thousands, except per share amounts)
ASSETS
Current assets
Cash and cash equivalents	$	438,411	$	396,311	$	465,984
Accounts receivable, net of allowance for doubtful accounts of $16.9 million, $17.5 million and $17.4 million, respectively		573,613		509,430		605,512
Inventories		550,059		346,668		512,155
Prepaid income taxes		1,071		15,768		14,502
Prepaid expenses and other current assets		53,425		55,945		54,704
Total current assets		1,616,579		1,324,122		1,652,857
Investments in unconsolidated affiliates		89,827		60,850		65,503
Property and equipment, net		47,274		53,298		48,805
Operating lease assets		164,607		180,715		169,595
Other assets, net		54,132		37,232		54,992
Other intangibles, net		30,512		34,141		31,361
Deferred income tax assets, net		1,647		5,222		3,559
Trademarks		451,967		441,075		453,329
Goodwill		261,727		262,065		262,527
Total assets	$	2,718,272	$	2,398,720	$	2,742,528
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of notes payable	$	4,554	$	5,105	$	4,237
Accounts payable		215,489		114,124		236,921
Accrued expenses		94,359		82,592		128,124
Customer refund liabilities		78,052		88,943		86,788
Current operating lease liabilities		41,112		43,656		42,763
Income tax payable		17,060		11,547		9,995
Other current liabilities		1,358		1,790		1,977
Total current liabilities		451,984		347,757		510,805
Notes payable, net of discount and unamortized issuance costs		516,828		509,784		515,344
Deferred income tax liabilities, net		38,021		20,051		40,010
Noncurrent operating lease liabilities		139,686		155,218		142,868
Other noncurrent liabilities		12,998		7,012		13,118
Total liabilities		1,159,517		1,039,822		1,222,145

Redeemable noncontrolling interests		463		1,022		471

Stockholders' Equity
Preferred stock; 1,000 shares authorized; no shares issued		—		—		—
Common stock - $0.01 par value; 120,000 shares authorized; 49,396, 49,396 and 49,396 shares issued, respectively		264		264		264
Additional paid-in capital		460,999		450,961		456,329
Accumulated other comprehensive loss		(18,657)		(9,057)		(14,529)
Retained earnings		1,147,639		942,733		1,117,005
Common stock held in treasury, at cost - 1,209, 1,019 and 1,480 shares, respectively		(31,953)		(27,025)		(39,157)
Total stockholders' equity		1,558,292		1,357,876		1,519,912
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	2,718,272	$	2,398,720	$	2,742,528

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


	Three Months Ended April 30,
	2022		2021

	(Unaudited)
	(In thousands, except per share amounts)
Net sales	$	688,757	$	519,910
Cost of goods sold		442,718		324,441
Gross profit		246,039		195,469
Selling, general and administrative expenses		185,407		141,603
Depreciation and amortization		6,095		7,044
Operating profit		54,537		46,822
Other (loss) income		(2,708)		1,820
Interest and financing charges, net		(12,203)		(12,004)
Income before income taxes		39,626		36,638
Income tax expense		9,000		10,259
Net income		30,626		26,379
Less: (Loss) income attributable to noncontrolling interests		(8)		58
Net income attributable to G-III Apparel Group, Ltd.	$	30,634	$	26,321



NET INCOME PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.:
Basic:
Net income per common share	$	0.64	$	0.54
Weighted average number of shares outstanding		48,016		48,377

Diluted:
Net income per common share	$	0.62	$	0.53
Weighted average number of shares outstanding		49,108		49,510

Net income	$	30,626	$	26,379
Other comprehensive loss:
Foreign currency translation adjustments		(4,130)		(6,959)
Other comprehensive loss:		(4,130)		(6,959)
Comprehensive income	$	26,496	$	19,420
Comprehensive (loss) income attributable to noncontrolling interests:
Net (loss) income		(8)		58
Foreign currency translation adjustments		2		(4)
Comprehensive (loss) income attributable to noncontrolling interests		(6)		54
Comprehensive income attributable to G-III Apparel Group, Ltd.	$	26,490	$	19,474

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


					Accumulated				Common
			Additional		Other				Stock
	Common		Paid-In		Comprehensive		Retained		Held In
	Stock		Capital		Loss		Earnings		Treasury		Total

	(Unaudited)
	(In thousands)
Balance as of January 31, 2022	$	264	$	456,329	$	(14,529)	$	1,117,005	$	(39,157)	$	1,519,912
Equity awards exercised/vested, net		—		(7,204)		—		—		7,204		—
Share-based compensation expense		—		20,549		—		—		—		20,549
Taxes paid for net share settlements		—		(8,675)		—		—		—		(8,675)
Other comprehensive income, net		—		—		(4,128)		—		—		(4,128)
Net income attributable to G-III Apparel Group, Ltd.		—		—		—		30,634		—		30,634
Balance as of April 30, 2022	$	264	$	460,999	$	(18,657)	$	1,147,639	$	(31,953)	$	1,558,292

Balance as of January 31, 2021	$	264	$	448,417	$	(2,094)	$	916,683	$	(27,029)	$	1,336,241
Equity awards exercised/vested, net		—		(4)		—		—		4		—
Share-based compensation expense		—		2,548		—		—		—		2,548
Other comprehensive loss, net		—		—		(6,963)		—		—		(6,963)
Cumulative effect of change in accounting principle		—		—		—		(271)		—		(271)
Net income attributable to G-III Apparel Group, Ltd.		—		—		—		26,321		—		26,321
Balance as of April 30, 2021	$	264	$	450,961	$	(9,057)	$	942,733	$	(27,025)	$	1,357,876

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended April 30,
	2022		2021

	(Unaudited)
	(In thousands)
Cash flows from operating activities
Net income attributable to G-III Apparel Group, Ltd.	$	30,634	$	26,321
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,095		7,044
Loss on disposal of fixed assets		24		—
Non-cash operating lease costs		11,852		10,346
Dividend received from unconsolidated affiliate		—		392
Equity gain in unconsolidated affiliates		(676)		(493)
Change in fair value of equity investment		1,126		—
Share-based compensation		20,549		2,548
Deferred financing charges and debt discount amortization		2,494		2,360
Deferred income taxes		71		(144)
Changes in operating assets and liabilities:
Accounts receivable, net		31,898		(16,731)
Inventories		(37,904)		69,834
Income taxes, net		20,496		10,024
Prepaid expenses and other current assets		(9)		713
Other assets, net		62		538
Customer refund liabilities		(8,736)		(10,412)
Operating lease liabilities		(11,675)		(11,491)
Accounts payable, accrued expenses and other liabilities		(55,130)		(43,805)
Net cash provided by operating activities		11,171		47,044

Cash flows from investing activities
Investment in e-commerce retailer		(25,000)		—
Capital expenditures		(4,334)		(2,666)
Net cash used in investing activities		(29,334)		(2,666)

Cash flows from financing activities
Repayment of borrowings - revolving facility		—		(418,355)
Proceeds from borrowings - revolving facility		—		418,355
Repayment of borrowings - foreign facilities		(356)		—
Proceeds from borrowings - foreign facilities		287		1,148
Taxes paid for net share settlements		(8,675)		—
Net cash (used in) provided by financing activities		(8,744)		1,148

Foreign currency translation adjustments		(666)		(1,149)
Net (decrease) increase in cash and cash equivalents		(27,573)		44,377
Cash and cash equivalents at beginning of period		465,984		351,934
Cash and cash equivalents at end of period	$	438,411	$	396,311

Supplemental disclosures of cash flow information
Cash payments:
Interest, net	$	17,236	$	17,903
Income tax payments, net	$	(11,694)	$	191

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

As used in these financial statements, the term “Company” or “G-III” refers to G-III Apparel Group, Ltd. and its subsidiaries. The Company designs, sources and markets an extensive range of apparel, including outerwear, dresses, sportswear, swimwear, women’s suits and women’s performance wear, as well as women’s handbags, footwear, small leather goods, cold weather accessories and luggage. The Company also operates retail stores and licenses its proprietary brands for several product categories.

The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries. KL North America B.V. (“KLNA”) is a Dutch joint venture limited liability company that is 49% owned by the Company. Karl Lagerfeld Holding B.V. (“KLH”) is a Dutch limited liability company that is 19% owned by the Company. The Company accounts for these two investments using the equity method of accounting. All material intercompany balances and transactions have been eliminated. See Note 13 – Subsequent Events with respect to an agreement entered into by the Company to increase its percentage ownership interest in KLH to 100%. Once KLH becomes wholly-owned by the Company, KLNA will become an indirect wholly owned subsidiary of the Company.

Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, KLH, KLNA, Fabco Holding B.V. (“Fabco”) and Sonia Rykiel, which the Company purchased in October 2021, report results on a calendar year basis rather than on the January 31 fiscal year basis used by the Company. Accordingly, the results of Vilebrequin, KLH, KLNA, Fabco and Sonia Rykiel are, and will be, included in the financial statements for the quarter ended or ending closest to the Company’s fiscal quarter end. For example, with respect to the Company’s results for the three-month period ended April 30, 2022, the results of Vilebrequin, KLH, KLNA, Fabco and Sonia Rykiel are included for the three-month period ended March 31, 2022. The Company’s retail operations segment reports on a 52/53-week fiscal year. The Company’s three-month periods ended April 30, 2022 and 2021 were each 13-week periods for the retail operations segment. For fiscal 2023 and 2022, the three-month periods for the retail operations segment ended on April 30, 2022 and May 1, 2021, respectively.

The results for the three months ended April 30, 2022 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of the Company’s business and the effects of the COVID-19 pandemic on the Company’s business. The accompanying financial statements included herein are unaudited. All adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period presented have been reflected.

The accompanying financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed with the Securities and Exchange Commission (the “SEC”).

Assets and liabilities of the Company’s foreign operations, where the functional currency is not the U.S. dollar (reporting currency), are translated from foreign currency into U.S. dollars at period-end rates, while income and expenses are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive loss within stockholders’ equity.

Note 2 – Allowance for Doubtful Accounts

The Company’s financial instruments consist of trade receivables arising from revenue transactions in the ordinary course of business. The Company considers its trade receivables to consist of two portfolio segments: wholesale and retail trade receivables. Wholesale trade receivables result from credit the Company has extended to its wholesale customers based on pre-defined criteria and are generally due within 30 to 60 days. Retail trade receivables primarily relate to amounts due from third-party credit card processors for the settlement of debit and credit card transactions and are typically collected within 3 to 5 days.

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The Company’s accounts receivable and allowance for doubtful accounts as of April 30, 2022, April 30, 2021 and January 31, 2022 were:


	April 30, 2022
	Wholesale		Retail		Total

	(In thousands)
Accounts receivable, gross	$	589,233	$	1,319	$	590,552
Allowance for doubtful accounts		(16,858)		(81)		(16,939)
Accounts receivable, net	$	572,375	$	1,238	$	573,613

	April 30, 2021
	Wholesale		Retail		Total

	(In thousands)
Accounts receivable, gross	$	525,568	$	1,328	$	526,896
Allowance for doubtful accounts		(17,414)		(52)		(17,466)
Accounts receivable, net	$	508,154	$	1,276	$	509,430

	January 31, 2022
	Wholesale		Retail		Total

	(In thousands)
Accounts receivable, gross	$	620,737	$	2,166	$	622,903
Allowance for doubtful accounts		(17,307)		(84)		(17,391)
Accounts receivable, net	$	603,430	$	2,082	$	605,512

The allowance for doubtful accounts for wholesale trade receivables is estimated based on several factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (such as in the case of bankruptcy filings (including potential bankruptcy filings), extensive delay in payment or substantial downgrading by credit rating agencies), a specific reserve for bad debt is recorded against amounts due from that customer to reduce the net recognized receivable to the amount reasonably expected to be collected. For all other wholesale customers, an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the end of the reporting period for financial statements, assessments of collectability based on historical trends and an evaluation of the impact of economic conditions. The Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.

The allowance for doubtful accounts for retail trade receivables is estimated at the credit card chargeback rate applied to the previous 90 days of credit card sales. In addition, the Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.

The Company had the following activity in its allowance for credit losses:


	Wholesale		Retail		Total

	(In thousands)
Balance as of January 31, 2022	$	(17,307)	$	(84)	$	(17,391)
Provision for credit losses, net		411		3		414
Accounts written off as uncollectible		38		—		38
Balance as of April 30, 2022	$	(16,858)	$	(81)	$	(16,939)

Balance as of January 31, 2021	$	(17,429)	$	(30)	$	(17,459)
Provision for credit losses, net		(54)		(22)		(76)
Accounts written off as uncollectible		69		—		69
Balance as of April 30, 2021	$	(17,414)	$	(52)	$	(17,466)

Balance as of January 31, 2021	$	(17,429)	$	(30)	$	(17,459)
Provision for credit losses, net		(103)		(54)		(157)
Accounts written off as uncollectible		225		—		225
Balance as of January 31, 2022	$	(17,307)	$	(84)	$	(17,391)

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Note 3 – Inventories

Wholesale inventories, which comprise a significant portion of the Company’s inventory, are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Retail and Vilebrequin inventories are stated at the lower of cost (determined by the weighted average method) or net realizable value. Substantially all of the Company’s inventories consist of finished goods.

The inventory return asset, which consists of the amount of goods that are anticipated to be returned by customers, was $16.4 million, $16.9 million and $18.9 million as of April 30, 2022, April 30, 2021 and January 31, 2022, respectively. The inventory return asset is recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets.

Inventory held on consignment by the Company’s customers totaled $5.9 million, $4.6 million and $4.5 million at April 30, 2022, April 30, 2021 and January 31, 2022, respectively. Consignment inventory is stored at the facilities of the Company’s customers. The Company reflects this inventory on its condensed consolidated balance sheets.

Note 4 – Fair Value of Financial Instruments

Generally Accepted Accounting Principles establish a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

●

Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets.

●

Level 2 — inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable.

●

Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement.

The following table summarizes the carrying values and the estimated fair values of the Company’s debt instruments:


		Carrying Value						Fair Value
		April 30,		April 30,		January 31,		April 30,		April 30,		January 31,
Financial Instrument	Level	2022		2021		2022		2022		2021		2022

		(In thousands)
Secured notes	1	$	400,000	$	400,000	$	400,000	$	416,000	$	400,000	$	422,020
Revolving credit facility	2		—		—		—		—		—		—
Note issued to LVMH	3		115,926		109,406		114,255		112,306		103,828		110,123
Unsecured loans	2		7,845		8,816		8,367		7,845		8,816		8,367
Overdraft facilities	2		3,131		3,885		2,903		3,131		3,885		2,903

The Company’s debt instruments are recorded at their carrying values in its condensed consolidated balance sheets, which may differ from their respective fair values. The fair value of the Company’s secured notes is based on their current market price as of April 30, 2022. The carrying amount of the Company’s variable rate debt approximates the fair value, as interest rates change with the market rates. Furthermore, the carrying value of all other financial instruments potentially subject to valuation risk (principally consisting of cash, accounts receivable and accounts payable) also approximates fair value due to the short-term nature of these accounts.

The 2% note in the principal amount of $125 million (the “LVMH Note”) issued to LVMH Moet Hennessy Louis Vuitton Inc. (“LVMH”) in connection with the acquisition of DKNY and Donna Karan was recorded on the balance sheet at a discount of $40.0 million in accordance with ASC 820 – Fair Value Measurements. For purposes of this fair value

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disclosure, the Company based its fair value estimate for the LVMH Note on the initial fair value as determined at the date of the acquisition of DKNY and Donna Karan and records the amortization using the effective interest method over the term of the LVMH Note.

The fair value of the LVMH Note was considered a Level 3 valuation in the fair value hierarchy.

Non-Financial Assets and Liabilities

The Company’s non-financial assets that are measured at fair value on a nonrecurring basis include long-lived assets, which consist primarily of property and equipment and operating lease assets. The Company reviews these assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable. For assets that are not recoverable, an impairment loss is recognized equal to the difference between the carrying amount of the asset or asset group and its estimated fair value. For operating lease assets, the Company determines the fair value of the assets by discounting the estimated market rental rates over the remaining term of the lease. These fair value measurements are considered level 3 measurements in the fair value hierarchy. During the fourth quarter of fiscal 2022, the Company recorded a $1.5 million impairment charge primarily related to leasehold improvements, furniture and fixtures and operating lease assets at certain DKNY, Karl Lagerfeld Paris and Vilebrequin stores as a result of the performance at these stores.

Note 5 – Leases

The Company leases retail stores, warehouses, distribution centers, office space and certain equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Most leases are for a term of one to ten years. Some leases include one or more options to renew, with renewal terms that can extend the lease term from one to ten years. Several of the Company’s retail store leases include an option to terminate the lease based on failure to achieve a specified sales volume. The exercise of lease renewal options is generally at the Company’s sole discretion. The exercise of lease termination options is generally by mutual agreement between the Company and the lessor.

Certain of the Company’s lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.

The Company’s lease assets and liabilities as of April 30, 2022, April 30, 2021 and January 31, 2022 consist of the following:



Leases	Classification	April 30, 2022		April 30, 2021		January 31, 2022

		(In thousands)
Assets
Operating	Operating lease assets	$	164,607	$	180,715	$	169,595

Liabilities
Current operating	Current operating lease liabilities	$	41,112	$	43,656	$	42,763
Noncurrent operating	Noncurrent operating lease liabilities		139,686		155,218		142,868
Total lease liabilities		$	180,798	$	198,874	$	185,631

The Company recorded lease costs of $14.1 million and $13.6 million during the three months ended April 30, 2022 and 2021, respectively. Lease costs are recorded within selling, general and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive income. The Company recorded variable lease costs and short-term lease costs of $5.1 million and $1.5 million for the three months ended April 30, 2022 and 2021, respectively.

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As of April 30, 2022, the Company’s maturity of operating lease liabilities in the years ending up to January 31, 2027 and thereafter are as follows:


Year Ending January 31,	Amount
	(In thousands)
2023	$	41,025
2024		45,347
2025		38,151
2026		30,712
2027		24,544
After 2027		46,103
Total lease payments	$	225,882
Less: Interest		45,084
Present value of lease liabilities	$	180,798

As of April 30, 2022, there are no material leases that are legally binding but have not yet commenced.

As of April 30, 2022, the weighted average remaining lease term related to operating leases is 5.4 years. The weighted average discount rate related to operating leases is 8.3%.

Cash paid for amounts included in the measurement of operating lease liabilities is $15.0 million and $14.8 million during the three months ended April 30, 2022 and April 30, 2021, respectively. Right-of-use assets obtained in exchange for lease obligations were $8.6 million and $6.5 million during the three months ended April 30, 2022 and April 30, 2021, respectively.

Note 6 – Net Income per Common Share

Basic net income per common share has been computed using the weighted average number of common shares outstanding during each period. Diluted net income per share, when applicable, is computed using the weighted average number of common shares and potential dilutive common shares, consisting of unvested restricted stock unit awards and stock options outstanding during the period. Approximately 113,300 and 238,500 shares of common stock have been excluded from the diluted net income per share calculation for the three months ended April 30, 2022 and 2021, respectively, as they are anti-dilutive. All share-based payments outstanding that vest based on the achievement of performance conditions, and for which the respective performance conditions have not been achieved, have been excluded from the diluted per share calculation.

The following table reconciles the numerators and denominators used in the calculation of basic and diluted net income per share:


	Three Months Ended April 30,
	2022		2021

	(In thousands, except share and per share amounts)
Net income attributable to G-III Apparel Group, Ltd.	$	30,634	$	26,321
Basic net income per share:
Basic common shares		48,016		48,377
Basic net income per share	$	0.64	$	0.54

Diluted net income per share:
Basic common shares		48,016		48,377
Dilutive restricted stock unit awards and stock options		1,092		1,133
Diluted common shares		49,108		49,510
Diluted net income per share	$	0.62	$	0.53

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Note 7 – Notes Payable

Long-term debt consists of the following:


	April 30, 2022		April 30, 2021		January 31, 2022

	(In thousands)
Secured Notes	$	400,000	$	400,000	$	400,000
Revolving credit facility		—		—		—
LVMH Note		125,000		125,000		125,000
Unsecured loans		7,845		8,816		8,367
Overdraft facilities		3,131		3,885		2,903
Subtotal		535,976		537,701		536,270
Less: Net debt issuance costs ⁽¹⁾		(5,520)		(7,218)		(5,944)
Debt discount		(9,074)		(15,594)		(10,745)
Current portion of long-term debt		(4,554)		(5,105)		(4,237)
Total	$	516,828	$	509,784	$	515,344

(1)

Does not include debt issuance costs, net of amortization, totaling $5.2 million, $6.8 million and $5.6 million as of April 30, 2022, April 30, 2021 and January 31, 2022, respectively, related to the revolving credit facility. These debt issuance costs have been deferred and are classified in assets in the accompanying condensed consolidated balance sheets in accordance with ASC 835.

Senior Secured Notes

In August 2020, the Company completed a private debt offering of $400 million aggregate principal amount of its 7.875% Senior Secured Notes due 2025 (the “Notes”). The terms of the Notes are governed by an indenture (the “Indenture”), among the Company, the guarantors party thereto and U.S. Bank, National Association, as trustee and collateral agent (the “Collateral Agent”). The net proceeds of the Notes have been used (i) to repay the $300 million that was outstanding under the Company’s prior term loan facility due 2022 (the “Term Loan”), (ii) to pay related fees and expenses and (iii) for general corporate purposes.

The Notes bear interest at a rate of 7.875% per year payable semi-annually in arrears on February 15 and August 15 of each year.

The Notes are unconditionally guaranteed on a senior-priority secured basis by the Company’s current and future wholly-owned domestic subsidiaries that guarantee any of the Company’s credit facilities, including the Company’s ABL facility (the “ABL Facility”) pursuant to the ABL Credit Agreement, or certain future capital markets indebtedness of the Company or guarantors.

The Notes and the related guarantees are secured by (i) first priority liens on the Company’s Cash Flow Priority Collateral (as defined in the Indenture), and (ii) a second-priority lien on the Company’s ABL Priority Collateral (as defined in the Indenture), in each case subject to permitted liens described in the Indenture.

In connection with the issuance of the Notes and execution of the Indenture, the Company and the Guarantors entered into a pledge and security agreement (the “Pledge and Security Agreement”), among the Company, the Guarantors and the Collateral Agent.

The Notes are subject to the terms of the intercreditor agreement which governs the relative rights of the secured parties in respect of the ABL Facility and the Notes (the “Intercreditor Agreement”). The Intercreditor Agreement restricts the actions permitted to be taken by the Collateral Agent with respect to the Collateral on behalf of the holders of the Notes. The Notes are also subject to the terms of the LVMH Note subordination agreement which governs the relative rights of the secured parties in respect of the LVMH Note, the ABL Facility and the Notes.

At any time prior to August 15, 2022, the Company may redeem some or all of the Notes at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date plus a “make-whole” premium, as described in the Indenture. On or after August 15, 2022, the Company may redeem some or all of the Notes at any time and from time to time at the redemption prices set forth in the Indenture,

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plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time prior to August 15, 2022, the Company may redeem up to 40% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings at the redemption price set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time prior to August 15, 2022, during any twelve month period, the Company may redeem up to 10% of the aggregate principal amount of the Notes at a redemption price equal to 103% of the principal amount of the Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

If the Company experiences a Change of Control (as defined in the Indenture), the Company is required to offer to repurchase the Notes at 101% of the principal amount of such Notes plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

The Indenture contains covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other restricted payments, make certain investments, incur restrictions on the ability of the Company’s restricted subsidiaries that are not guarantors to pay dividends or make certain other payments, create or incur certain liens, sell assets and subsidiary stock, impair the security interests, transfer all or substantially all of the Company’s assets or enter into merger or consolidation transactions, and enter into transactions with affiliates. The Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest, breach of other agreements in the Indenture, failure to pay certain other indebtedness, failure of certain guarantees to be enforceable, failure to perfect certain collateral securing the Notes, failure to pay certain final judgments, and certain events of bankruptcy or insolvency.

The Company incurred debt issuance costs totaling $8.5 million related to the Notes. In accordance with ASC 835, the debt issuance costs have been deferred and are presented as a contra-liability, offsetting the outstanding balance of the Notes, and are amortized over the remaining life of the Notes. In addition, the Company had unamortized debt issuance costs of $6.1 million associated with the Term Loan. Upon repayment of the Term Loan, these debt issuance costs were fully extinguished and charged to interest expense in the Company’s results of operations.

Second Amended and Restated ABL Credit Agreement

In August 2020, the Company’s subsidiaries, G-III Leather Fashions, Inc., Riviera Sun, Inc., CK Outerwear, LLC, AM Retail Group, Inc. and The Donna Karan Company Store LLC (collectively, the “Borrowers”), entered into the second amended and restated credit agreement (the “ABL Credit Agreement”) with the Lenders named therein and with JPMorgan Chase Bank, N.A., as Administrative Agent. The ABL Credit Agreement is a five year senior secured credit facility subject to a springing maturity date if, subject to certain conditions, the LVMH Note is not refinanced or repaid prior to the date that is 91 days prior to the date of any relevant payment thereunder. The ABL Credit Agreement provides for borrowings in the aggregate principal amount of up to $650 million. The Company and its subsidiaries, G-III Apparel Canada ULC, Gabrielle Studio, Inc., Donna Karan International Inc. and Donna Karan Studio LLC (the “Guarantors”), are Loan Guarantors under the ABL Credit Agreement.

The ABL Credit Agreement refinanced, amended and restated the Amended Credit Agreement, dated as of December 1, 2016 (as amended, supplemented or otherwise modified from time to time prior to August 7, 2020, the “Prior Credit Agreement”), by and among the Borrowers and the Loan Guarantors (each as defined therein) party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., in its capacity as the administrative agent thereunder. The Prior Credit Agreement provided for borrowings of up to $650 million. The ABL Credit Agreement extended the maturity date of this facility from December 2021 to August 2025, subject to a springing maturity date if, subject to certain conditions, the LVMH Note is not refinanced or repaid prior to the date that is 91 days prior to the date of any relevant payment thereunder.

Amounts available under the ABL Credit Agreement are subject to borrowing base formulas and overadvances as specified in the ABL Credit Agreement. Borrowings bear interest, at the Borrowers’ option, at LIBOR plus a margin of 1.75% to 2.25% or an alternate base rate margin of 0.75% to 1.25% (defined as the greatest of (i) the “prime rate” of JPMorgan Chase Bank, N.A. from time to time, (ii) the federal funds rate plus 0.5% and (iii) the LIBOR rate for a borrowing with an interest period of one month) plus 1.00%, with the applicable margin determined based on Borrowers’ availability under

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the ABL Credit Agreement. The ABL Credit Agreement is secured by specified assets of the Borrowers and the Guarantors. In addition to paying interest on any outstanding borrowings under the ABL Credit Agreement, the Company is required to pay a commitment fee to the lenders under the credit agreement with respect to the unutilized commitments. The commitment fee accrues at a tiered rate equal to 0.50% per annum on the average daily amount of the available commitments when the average usage is less than 50% of the total available commitments and decreases to 0.35% per annum on the average daily amount of the available commitments when the average usage is greater than or equal to 50% of the total available commitments.

The revolving credit facility contains covenants that, among other things, restrict the Company’s ability to, subject to specified exceptions, incur additional debt; incur liens; sell or dispose of certain assets; merge with other companies; liquidate or dissolve the Company; acquire other companies; make loans, advances, or guarantees; and make certain investments. In certain circumstances, the revolving credit facility also requires the Company to maintain a fixed charge coverage ratio, as defined in the agreement, not less than 1.00 to 1.00 for each period of twelve consecutive fiscal months of the Company. As of April 30, 2022, the Company was in compliance with these covenants.

As of April 30, 2022, the Company had no borrowings outstanding under the ABL Credit Agreement. The ABL credit agreement also includes amounts available for letters of credit. As of April 30, 2022, there were outstanding trade and standby letters of credit amounting to $18.8 million and $3.4 million, respectively.

At the date of the refinancing of the Prior Credit Agreement, the Company had $3.3 million of unamortized debt issuance costs remaining from the Prior Credit Agreement. The Company extinguished and charged to interest expense $0.4 million of the prior debt issuance costs and incurred new debt issuance costs totaling $5.1 million related to the ABL Credit Agreement. The Company has a total of $8.0 million debt issuance costs related to the ABL Credit Agreement. As permitted under ASC 835, the debt issuance costs have been deferred and are presented as an asset which is amortized ratably over the term of the ABL Credit Agreement.

LVMH Note

As a portion of the consideration for the acquisition of DKI, the Company issued to LVMH a junior lien secured promissory note in the principal amount of $125.0 million that bears interest at the rate of 2% per year. $75.0 million of the principal amount of the LVMH Note is due and payable on June 1, 2023 and $50.0 million of such principal amount is due and payable on December 1, 2023.

ASC 820 requires the note to be recorded at fair value at issuance. As a result, the Company recorded a $40.0 million debt discount. This discount is being amortized as interest expense using the effective interest method over the term of the LVMH Note.

Unsecured Loans

During fiscal 2020 and fiscal 2021, T.R.B International SA (“TRB”), a subsidiary of Vilebrequin, borrowed funds under several unsecured loans. A portion of the unsecured loans was to provide funding for operations in the normal course of business, while other unsecured loans were various European state backed loans as part of COVID-19 relief programs. Additionally, Sonia Rykiel borrowed funds pursuant to European state backed loans that were part of COVID-19 relief programs. In the aggregate, the Company is currently required to make quarterly installment payments of €0.2 million under these loans. Interest on the outstanding principal amount of the unsecured loans accrues at a fixed rate equal to 0% to 2.0% per annum, payable on either a quarterly or monthly basis. As of April 30, 2022, the Company had an aggregate outstanding balance of €7.1 million ($7.8 million) under these unsecured loans.

Overdraft Facilities

During fiscal 2022, TRB entered into several overdraft facilities that allow for applicable bank accounts to be in a negative position up to a certain maximum overdraft. TRB entered into an uncommitted overdraft facility with HSBC Bank allowing for a maximum overdraft of €5 million. Interest on drawn balances accrues at a rate equal to the Euro Interbank Offered Rate plus a margin of 1.75% per annum, payable quarterly. The facility may be cancelled at any time by TRB or HSBC Bank. As part of a COVID-19 relief program, TRB and its subsidiaries have also entered into several state backed overdraft

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facilities with UBS Bank in Switzerland for an aggregate of CHF 4.7 million at varying interest rates of 0% to 0.5%. As of April 30, 2022, TRB had an aggregate of €2.8 million ($3.1 million) drawn under these facilities.

Note 8 – Revenue Recognition

Disaggregation of Revenue

In accordance with ASC 606 – Revenue from Contracts with Customers, the Company discloses its revenues by segment. Each segment presents its own characteristics with respect to the timing of revenue recognition and the type of customer. In addition, disaggregating revenues using a segment basis is consistent with how the Company’s Chief Operating Decision Maker manages the Company. The Company has identified the wholesale operations segment and the retail operations segment as distinct sources of revenue.

Wholesale Operations Segment. Wholesale revenues include sales of products to retailers under owned, licensed and private label brands, as well as sales related to the Vilebrequin business. Wholesale revenues from sales of products are recognized when control transfers to the customer. The Company considers control to have been transferred when the Company has transferred physical possession of the product, the Company has a right to payment for the product, the customer has legal title to the product and the customer has the significant risks and rewards of the product. Wholesale revenues are adjusted by variable consideration arising from implicit or explicit obligations. Wholesale revenues also include revenues from license agreements related to the DKNY, Donna Karan, G.H. Bass, Andrew Marc and Vilebrequin trademarks owned by the Company. As of April 30, 2022, revenues from license agreements represented an insignificant portion of wholesale revenues.

Retail Operations Segment. Retail store revenues are generated by direct sales to consumers through company-operated stores and product sales through the Company’s digital channels for the DKNY, Donna Karan, G.H. Bass, Karl Lagerfeld Paris, Andrew Marc and Wilsons Leather businesses. Retail stores primarily consist of DKNY and Karl Lagerfeld Paris retail stores, substantially all of which are operated as outlet stores. Retail operations segment revenues are recognized at the point of sale when the customer takes possession of the goods and tenders payment. Digital revenues primarily consist of sales to consumers through the Company’s digital platforms. Digital revenue is recognized when a customer takes possession of the goods. Retail sales are recorded net of applicable sales tax.

Contract Liabilities

The Company’s contract liabilities, which are recorded within accrued expenses in the accompanying condensed consolidated balance sheets, primarily consist of gift card liabilities and advance payments from licensees. In some of its retail concepts, the Company also offers a limited loyalty program where customers accumulate points redeemable for cash discount certificates that expire 90 days after issuance. Total contract liabilities were $3.6 million, $4.1 million and $5.1 million at April 30, 2022, April 30, 2021 and January 31, 2022, respectively. The Company recognized $3.7 million in revenue for the three months ended April 30, 2022 related to contract liabilities that existed at January 31, 2022. The Company recognized $3.2 million in revenue for the three months ended April 30, 2021 related to contract liabilities that existed at January 31, 2021. There were no contract assets recorded as of April 30, 2022, April 30, 2021 and January 31, 2022. Substantially all of the advance payments from licensees as of April 30, 2022 are expected to be recognized as revenue within the next twelve months.

Note 9 – Segments

The Company’s reportable segments are business units that offer products through different channels of distribution. The Company has two reportable segments: wholesale operations and retail operations. The wholesale operations segment includes sales of products under the Company’s owned, licensed and private label brands, as well as sales related to the Vilebrequin business. Wholesale revenues also include revenues from license agreements related to our owned trademarks including DKNY, Donna Karan, Vilebrequin, G.H. Bass and Andrew Marc. The retail operations segment consists primarily of direct sales to consumers through Company-operated stores, which consists primarily of DKNY and Karl Lagerfeld Paris stores, as well as the digital channels for DKNY, Donna Karan, Karl Lagerfeld Paris, G.H. Bass, Andrew Marc and Wilsons Leather. Substantially all DKNY and Karl Lagerfeld Paris stores are operated as outlet stores.

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The following segment information is presented for the three-month periods indicated below: