Company Quick10K Filing
Quick10K
G III Apparel Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.25 49 $991
10-Q 2019-07-31 Quarter: 2019-07-31
10-Q 2019-04-30 Quarter: 2019-04-30
10-K 2019-01-31 Annual: 2019-01-31
10-Q 2018-10-31 Quarter: 2018-10-31
10-Q 2018-07-31 Quarter: 2018-07-31
10-Q 2018-04-30 Quarter: 2018-04-30
10-K 2018-01-31 Annual: 2018-01-31
10-Q 2017-10-31 Quarter: 2017-10-31
10-Q 2017-07-31 Quarter: 2017-07-31
10-Q 2017-04-30 Quarter: 2017-04-30
10-K 2017-01-31 Annual: 2017-01-31
10-Q 2016-10-31 Quarter: 2016-10-31
10-Q 2016-07-31 Quarter: 2016-07-31
10-Q 2016-04-30 Quarter: 2016-04-30
10-K 2016-01-31 Annual: 2016-01-31
10-Q 2015-10-31 Quarter: 2015-10-31
10-Q 2015-07-31 Quarter: 2015-07-31
10-Q 2015-04-30 Quarter: 2015-04-30
10-K 2015-01-31 Annual: 2015-01-31
10-Q 2014-10-31 Quarter: 2014-10-31
10-Q 2014-07-31 Quarter: 2014-07-31
10-Q 2014-04-30 Quarter: 2014-04-30
10-K 2014-01-31 Annual: 2014-01-31
8-K 2019-09-05 Earnings, Exhibits
8-K 2019-06-13 Shareholder Vote, Exhibits
8-K 2019-06-05 Earnings, Exhibits
8-K 2019-04-17 Enter Agreement, Officers, Exhibits
8-K 2019-03-21 Earnings, Exhibits
8-K 2018-12-06 Earnings, Exhibits
8-K 2018-09-06 Earnings, Exhibits
8-K 2018-06-14 Shareholder Vote
8-K 2018-06-05 Other Events, Exhibits
8-K 2018-06-05 Earnings, Exhibits
8-K 2018-04-26 Enter Agreement, Officers, Exhibits
8-K 2018-03-22 Earnings, Exhibits
VFC VF 32,252
UA Under Armour 7,687
GES Guess? 1,298
VRA Vera Bradley 359
JILL J.Jill 87
JRSH Jerash 79
TLF Tandy Leather Factory 40
CHKE Cherokee 10
NAKD Naked Brand Group Limited 0
GOOS Canada Goose Holdings 0
GIII 2019-07-31
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Basis of Presentation
Note 2 - Inventories
Note 3 - Fair Value of Financial Instruments
Note 4 - Leases
Note 5 - Net Income per Common Share
Note 6 - Notes Payable
Note 7 - Revenue Recognition
Note 8 - Segments
Note 9 - Stockholders' Equity
Note 10 - Canadian Customs Duty Examination
Note 11 - Recent Adopted and Issued Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits.
EX-31.1 giii-20190731xex311dbf52e.htm
EX-31.2 giii-20190731xex31253a3fe.htm
EX-32.1 giii-20190731xex321975b83.htm
EX-32.2 giii-20190731xex322321010.htm

G III Apparel Group Earnings 2019-07-31

GIII 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Table of Contents

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 July 31, 2019

or

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 September 3, 2019, there were 47,745,045 shares of issuer’s common stock, par value $0.01 per share, outstanding.

Table of Contents

TABLE OF CONTENTS

    

Page No.

Part I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets – July 31, 2019, July 31, 2018 and January 31, 2019

3

Condensed Consolidated Statements of Income and Comprehensive Income (Loss) - For the Three and Six Months Ended July 31, 2019 and 2018 (Unaudited)

4

Condensed Consolidated Statements of Cash Flows - For the Six Months Ended July 31, 2019 and 2018 (Unaudited)

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

Part II

OTHER INFORMATION

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 6.

Exhibits

29

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.          Financial Statements.

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

July 31,

July 31,

January 31,

2019

2018

2019

    

(Unaudited)

    

(Unaudited)

    

(In thousands, except per share amounts)

ASSETS

Current assets

Cash and cash equivalents

$

39,568

$

42,306

$

70,138

Accounts receivable, net of allowance for doubtful accounts

464,663

447,576

502,133

Inventories

842,136

678,571

576,383

Prepaid income taxes

12,500

6,962

8,308

Prepaid expenses and other current assets

93,353

100,688

96,933

Total current assets

1,452,220

1,276,103

1,253,895

Investments in unconsolidated affiliates

63,773

59,048

66,587

Property and equipment, net

85,548

92,133

86,407

Operating lease assets

309,421

Other assets, net

35,681

34,242

35,459

Other intangibles, net

40,444

44,193

42,404

Deferred income tax assets, net

25,253

28,360

22,427

Trademarks

439,409

440,878

439,742

Goodwill

260,687

261,677

261,137

Total assets

$

2,712,436

$

2,236,634

$

2,208,058

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Income tax payable

$

6,966

$

$

8,859

Accounts payable

346,642

301,427

225,499

Accrued expenses

89,137

95,464

102,841

Customer refund liabilities

179,078

204,360

243,589

Current operating lease liabilities

74,297

Current portion of notes payable

683

Other current liabilities

425

Total current liabilities

697,228

601,251

580,788

Notes payable, net of discount and unamortized issuance costs

553,118

494,206

386,604

Deferred income tax liabilities, net

15,019

15,393

15,128

Noncurrent operating lease liabilities

272,632

Other noncurrent liabilities

6,619

38,567

36,529

Total liabilities

1,544,616

1,149,417

1,019,049

Stockholders' Equity

Preferred stock; 1,000 shares authorized; no shares issued

Common stock - $0.01 par value; 120,000 shares authorized; 49,394, 49,238 and, 49,387 shares issued, respectively

264

263

264

Additional paid-in capital

456,195

460,000

464,112

Accumulated other comprehensive loss

(16,848)

(13,587)

(15,194)

Retained earnings

772,463

640,774

758,881

Common stock held in treasury, at cost - 1,649, 59 and 678 shares, respectively

(44,254)

(233)

(19,054)

Total stockholders' equity

1,167,820

1,087,217

1,189,009

Total liabilities and stockholders' equity

$

2,712,436

$

2,236,634

$

2,208,058

The accompanying notes are an integral part of these statements.

3

Table of Contents

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended July 31,

Six Months Ended July 31,

    

2019

    

2018

    

2019

    

2018

(Unaudited)

(In thousands, except per share amounts)

Net sales

$

643,892

$

624,698

$

1,277,444

$

1,236,441

Cost of goods sold

412,123

393,154

809,611

770,370

Gross profit

231,769

231,544

467,833

466,071

Selling, general and administrative expenses

196,448

198,860

398,307

400,931

Depreciation and amortization

9,789

9,455

19,262

18,835

Gain on lease terminations

(1,393)

(2,222)

Operating profit

26,925

23,229

52,486

46,305

Other loss

(751)

(28)

(1,399)

(479)

Interest and financing charges, net

(10,785)

(10,210)

(21,105)

(19,830)

Income before income taxes

15,389

12,991

29,982

25,996

Income tax expense

4,270

2,914

6,820

6,034

Net income

$

11,119

$

10,077

$

23,162

$

19,962

NET INCOME PER COMMON SHARE:

Basic:

Net income per common share

$

0.23

$

0.20

$

0.48

$

0.41

Weighted average number of shares outstanding

48,450

49,169

48,619

49,148

Diluted:

Net income per common share

$

0.23

$

0.20

$

0.47

$

0.40

Weighted average number of shares outstanding

49,116

50,415

49,436

50,272

Net income

$

11,119

$

10,077

$

23,162

$

19,962

Other comprehensive income:

Foreign currency translation adjustments

1,573

(11,501)

(1,654)

(8,065)

Other comprehensive income (loss)

1,573

(11,501)

(1,654)

(8,065)

Comprehensive income (loss)

$

12,692

$

(1,424)

$

21,508

$

11,897

The accompanying notes are an integral part of these statements.

4

Table of Contents

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended July 31,

    

2019

    

2018

(Unaudited)

(In thousands)

Cash flows from operating activities

Net income

$

23,162

$

19,962

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

19,262

18,835

Loss on disposal of fixed assets

1,230

145

Non-cash operating lease costs

36,729

Gain on lease terminations

(2,222)

Dividend received from unconsolidated affiliate

1,960

Equity (gain)/loss in unconsolidated affiliates

(867)

1,817

Share-based compensation

9,349

9,440

Deferred financing charges and debt discount amortization

4,577

4,984

Changes in operating assets and liabilities:

Accounts receivable, net

37,470

(153,396)

Inventories

(265,753)

(125,638)

Income taxes, net

(5,987)

(11,646)

Prepaid expenses and other current assets

3,321

(53,396)

Other assets, net

(1,164)

(2,427)

Customer refund liabilities

(64,512)

137,767

Operating lease liabilities

(38,300)

Accounts payable, accrued expenses and other liabilities

108,838

68,074

Net cash used in operating activities

(132,907)

(85,479)

Cash flows from investing activities

Operating lease assets initial direct costs

(1,940)

Capital expenditures

(17,531)

(11,455)

Net cash used in investing activities

(19,471)

(11,455)

Cash flows from financing activities

Repayment of borrowings - revolving facility

(942,973)

(899,720)

Proceeds from borrowings - revolving facility

1,102,973

999,143

Repayment of borrowings - unsecured term loan

(170)

Proceeds from borrowings - unsecured term loan

3,407

Proceeds from exercise of equity awards

116

56

Purchase of treasury shares

(35,216)

Taxes paid for net share settlements

(7,366)

(1,098)

Net cash provided by financing activities

120,771

98,381

Foreign currency translation adjustments

1,037

(4,917)

Net decrease in cash and cash equivalents

(30,570)

(3,470)

Cash and cash equivalents at beginning of period

70,138

45,776

Cash and cash equivalents at end of period

$

39,568

$

42,306

Supplemental disclosures of cash flow information

Cash payments:

Interest, net

$

15,735

$

16,648

Income tax payments, net

$

12,791

$

18,465

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 under several product categories.

The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries. KL North America B.V. (“KLNA”) and Fabco Holding B.V. (“Fabco”) are Dutch joint venture limited liability companies that are 49% owned by the Company. Karl Lagerfeld Holding B.V. (“KLH”) is a Dutch limited liability company that is 19% owned by the Company. These investments are accounted for using the equity method of accounting. All material intercompany balances and transactions have been eliminated.

Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, KLH, KLNA and Fabco 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 and Fabco 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 six-month period ended July 31, 2019, the results of Vilebrequin, KLH, KLNA and Fabco are included for the six-month period ended June 30, 2019. The Company’s retail operations segment reports on a 52/53-week fiscal year. The Company’s three and six-month periods ended July 31, 2019 and 2018 were each a 13-week fiscal quarter and 26-week period, respectively, for the retail operations segment. For fiscal 2020 and 2019, the three and six-month periods for the retail operations segment ended on August 3, 2019 and August 4, 2018, respectively.

The results for the three and six-month periods ended July 31, 2019 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of 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, 2019 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 – 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 inventories are valued at the lower of cost or market as determined by the retail inventory method. 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.

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The inventory return asset, which consists of the amount of goods that are anticipated to be returned by customers, represented $24.8 million, $36.2 million and $42.4 million as of July 31, 2019, July 31, 2018 and January 31, 2019 respectively. The inventory return asset is recorded within prepaid expenses and other current assets.

Inventory held on consignment by the Company’s customers totaled $3.9 million, $3.7 million and $4.9 million at July 31, 2019, July 31, 2018 and January 31, 2019, 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 3 – 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

    

July 31,

July 31,

January 31,

    

July 31,

July 31,

January 31,

Financial Instrument

Level

2019

2018

2019

2019

2018

2019

(In thousands)

Term loan

2

$

300,000

$

300,000

$

300,000

$

300,000

$

300,000

$

300,000

Revolving credit facility

2

160,000

111,426

160,000

111,426

Note issued to LVMH

3

99,266

94,100

96,618

96,437

85,000

88,608

Unsecured loan

2

3,243

3,243

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 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 issued to LVMH Moet Hennessy Louis Vuitton Inc. (“LVMH”) in connection with the acquisition of Donna Karan International (“DKI”) was issued at a discount of $40.0 million in accordance with Accounting Standards Codification (“ASC”) 820 – Fair Value Measurements. For purposes of this fair value disclosure, the Company based its fair value estimate for the note issued to LVMH on the initial fair value as determined at the date of the acquisition of DKI and records the amortization using the effective interest method over the term of the note.

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Non-Financial Assets and Liabilities

The Company’s non-financial assets, which primarily consist of operating lease assets, goodwill, other intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written down to and recorded at fair value, considering external market participant assumptions. During the first quarter of fiscal 2020, the Company recorded an impairment of $9.6 million, net of tax, in connection with the adoption of ASC 842 – Leases (“ASC 842”) that was recognized through retained earnings.

Note 4 – Leases

On February 1, 2019, the Company adopted ASC 842 using the optional transition method to apply the standard as of the effective date and, therefore, the standard has not been applied retroactively to the comparative periods presented in its financial statements.  The Company has elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. The hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use assets, has not been elected. Further, the Company elected the short-term lease exception policy, permitting it to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component.

The Company determines whether an arrangement is, or contains, a lease at contract inception. The Company leases certain retail stores, warehouses, distribution centers, office space and 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.

Total rent payable is recorded during the lease term, including rent escalations in which the amount of future rent is certain or fixed on the straight-line basis over the term of the lease (including any rent holiday periods beginning upon control of the premises and any fixed payments stated in the lease). For leases with an initial term greater than 12 months, a lease liability is recorded on the balance sheet at the present value of future payments discounted at the incremental borrowing rate (discount rate) corresponding with the lease term. An operating lease asset is recorded based on the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any initial direct costs incurred, less any tenant improvement allowance incentives received. The difference between the minimum rents paid and the straight-line rent (deferred rent) is reflected within the associated operating lease asset.

The lease classification evaluation begins at the commencement date. The lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain or the failure to exercise such option would result in an economic penalty. All retail store, warehouse, distribution center and office leases are classified as operating leases. The Company does not have any finance leases. Operating lease expense is generally recognized on a straight-line basis over the lease term.

Certain leases contain provisions that require contingent rent payments based upon sales volume (variable lease cost). Contingent rent is accrued each period as the liabilities are incurred.

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.

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The Company’s lease assets and liabilities as of July 31, 2019 consist of the following:

Leases

Classification

July 31, 2019

(In thousands)

Assets

Operating

Operating lease assets

$

309,421

Total lease assets

$

309,421

Liabilities

Current operating

Current operating lease liabilities

$

74,297

Noncurrent operating

Noncurrent operating lease liabilities

272,632

Total lease liabilities

$

346,929

The Company’s leases do not provide the rate of interest implicit in the lease. Therefore, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. For transition purposes, the incremental borrowing rate on February 1, 2019 was used for operating leases that commenced prior to that date.

The Company recorded lease costs of $24.9 million and $49.9 million during the three and six months ended July 31, 2019, respectively. Lease costs are recorded within selling, general and administrative expenses in the Company’s condensed consolidated statements of income and comprehensive income. The Company recorded variable lease costs and short-term lease costs of $2.7 million and $5.0 million for the three and six months ended July 31, 2019, respectively. Short-term lease costs are immaterial.

As of July 31, 2019, the Company’s maturity of operating lease liabilities in the years ending up to January 31, 2024 and thereafter are as follows:

Year Ending January 31,

Amount

(In thousands)

2020

$

49,670

2021

88,868

2022

75,281

2023

66,147

2024

52,795

After 2024

95,291

Total lease payments

$

428,052

Less: Interest

81,123

Present value of lease liabilities

$

346,929

As of July 31, 2019, there are no material leases that are legally binding but have not yet commenced.

As of July 31, 2019, the weighted average remaining lease term related to operating leases is 5.3 years. The weighted average discount rate related to operating leases is 7.8%.

Cash paid for amounts included in the measurement of operating lease liabilities is $51.9 million as of July 31, 2019. Right-of-use assets obtained in exchange for lease obligations were $15.6 million as of July 31, 2019.

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Note 5 – 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 is computed using the weighted average number of common shares and potential dilutive common shares, consisting of unvested restricted stock unit awards and unexercised stock options outstanding during the period. Approximately 794,400 and 327,000 unvested shares of common stock have been excluded from the diluted net income per share calculation for the three months ended July 31, 2019 and 2018, respectively. Approximately 606,500 and 322,000 unvested shares of common stock have been excluded from the diluted net income per share calculation for the six months ended July 31, 2019 and 2018, respectively. All share-based payments outstanding that vest based on the achievement of performance and/or market price conditions, and for which the respective performance and/or market price 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 July 31,

Six Months Ended July 31,

    

2019

    

2018

    

2019

    

2018

(In thousands, except per share amounts)

Net income

$

11,119

$

10,077

$

23,162

$

19,962

Basic net income per share:

Basic common shares

48,450

49,169

48,619

49,148

Basic net income per share

$

0.23

$

0.20

$

0.48

$

0.41

Diluted net income per share:

Basic common shares

48,450

49,169

48,619

49,148

Diluted restricted stock unit awards and stock options

666

1,246

817

1,124

Diluted common shares

49,116

50,415

49,436

50,272

Diluted net income per share

$

0.23

$

0.20

$

0.47

$

0.40

Note 6 – Notes Payable

Long-term debt consists of the following:

    

July 31, 2019

    

July 31, 2018

    

January 31, 2019

(In thousands)

Term loan

$

300,000

$

300,000

$

300,000

Revolving credit facility

160,000

111,426

Note issued to LVMH

125,000

125,000

125,000

Unsecured loan

3,243

Subtotal

588,243

536,426

425,000

Less: Net debt issuance costs (1)

(8,708)

(11,320)

(10,014)

Debt discount

(25,734)

(30,900)

(28,382)

Current portion of long-term debt

(683)

Total

$

553,118

$

494,206

$

386,604

(1)Does not include debt issuance costs, net of amortization, totaling $5.8 million, $8.3 million and $7.1 million as of July 31, 2019, July 31, 2018 and January 31, 2019, respectively, related to the revolving credit facility. These debt issuance costs have been deferred and are classified in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets in accordance with Accounting Standards Update (“ASU”) 2015-15.

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Term Loan

In connection with the acquisition of DKI, the Company borrowed $350.0 million under a senior secured term loan facility (the “Term Loan”). On December 1, 2016, the Company prepaid $50.0 million in principal amount of the Term Loan. The Term Loan will mature in December 2022.

Interest on the outstanding principal amount of the Term Loan accrues at a rate equal to the London Interbank Offered Rate (“LIBOR”), subject to a 1% floor, plus an applicable margin of 5.25% or an alternate base rate (defined as the greatest of (i) the “prime rate” as published by the Wall Street Journal from time to time, (ii) the federal funds rate plus 0.5% or (iii) the LIBOR rate for a borrowing with an interest period of one month) plus 4.25%, per annum, payable in cash. As of July 31, 2019, interest under the Term Loan was being paid at an average rate of 7.73% per annum.

The Term Loan is secured by certain assets of the Company and certain of its subsidiaries. The Term Loan is required to be prepaid with the proceeds of certain asset sales if such proceeds are not applied as required by the Term Loan within specified deadlines. The Term Loan contains covenants that, among other things, restrict the Company’s ability, subject to certain exceptions, to 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. This loan also includes a mandatory prepayment provision based on excess cash flow as defined within the agreement. A first lien leverage covenant requires the Company to maintain a level of debt to EBITDA at a ratio as defined over the term of the agreement. As of July 31, 2019, the Company was in compliance with these covenants.

Revolving Credit Facility

Upon closing of the acquisition of DKI, the Company’s prior credit agreement was refinanced and replaced by a $650 million amended and restated credit agreement (the “revolving credit facility”). Amounts available under the revolving credit facility are subject to borrowing base formulas and over advances as specified in the revolving credit facility agreement. Borrowings bear interest, at the Company’s option, at LIBOR plus a margin of 1.25% to 1.75% or an alternate base rate (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% or (iii) the LIBOR rate for a borrowing with an interest period of one month) plus a margin of 0.25% to 0.75%, with the applicable margin determined based on the availability under the revolving credit facility agreement. As of July 31, 2019, interest under the revolving credit agreement was being paid at an average rate of 3.68% per annum. The revolving credit facility has a five-year term ending December 1, 2021. In addition to paying interest on any outstanding borrowings under the revolving credit facility, 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 rate equal to 0.25% per annum on the average daily amount of the available commitments.

As of July 31, 2019, the Company had $160.0 million of borrowings outstanding under the revolving credit facility, all of which are classified as long-term liabilities. As of July 31, 2019, there were outstanding trade and standby letters of credit amounting to $10.0 million and $3.4 million, respectively.

The revolving credit facility contains covenants that, among other things, restrict the Company’s ability, subject to specified exceptions, to 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 July 31, 2019, the Company was in compliance with these covenants.

LVMH Note

As part 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 (the “LVMH Note”) 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. Accounting Standards Codification (“ASC”) 820 - Fair Value Measurements 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.

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Unsecured Loan

On April 15, 2019, T.R.B. International SA (“TRB”), a subsidiary of Vilebrequin, borrowed €3.0 million under an unsecured loan with Banque du Leman S.A (the “Unsecured Loan”). The Unsecured Loan matures on April 15, 2024. During the term of the Unsecured Loan, TRB is required to make quarterly installment payments of €0.2 million. Interest on the outstanding principal amount of the Unsecured Loan accrues at a fixed rate equal to 1.50% per annum, payable in cash.

Note 7 – Revenue Recognition

Disaggregation of Revenue

In accordance with ASC 606 – Revenue from Contracts with Customers, the Company elected to disclose its revenues by segment. Each segment has 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 considerations arising from implicit or explicit obligations. Wholesale revenues also include royalty revenues from license agreements related to our owned trademarks including DKNY, Donna Karan, Vilebrequin, G.H. Bass and Andrew Marc. As of July 31, 2019, 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 owned websites for the DKNY, Donna Karan, Wilsons, G.H. Bass, Andrew Marc and Karl Lagerfeld Paris businesses. Retail stores primarily consist of Wilsons Leather, G.H. Bass and DKNY retail stores, substantially all of which are operated as outlet stores, as well as a small number of Karl Lagerfeld Paris and Calvin Klein Performance stores. Retail operations segment revenues are recognized at the point of sale when the customer takes possession of the goods and tenders payment. E-commerce revenues primarily consist of sales to consumers through the Company’s e-commerce platforms. E-commerce 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 $6.6 million, $5.2 million and $6.4 million at July 31, 2019, July 31, 2018 and January 31, 2019, respectively. The Company recognized $4.4 million in revenue for the three months ended July 31, 2019 related to contract liabilities that existed at April 30, 2019. The Company recognized $5.2 million in revenue for the six months ended July 31, 2019 related to contract liabilities that existed at January 31, 2019. There were no contract assets recorded as of July 31, 2019, July 31, 2018 and January 31, 2019. Substantially all of the advance payments from licensees as of July 31, 2019 are expected to be recognized as revenue within the next twelve months.

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Note 8 – Segments

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 royalty revenues from license agreements related to our owned trademarks including Donna Karan, DKNY, Vilebrequin, G.H. Bass and Andrew Marc. The retail operations segment consists primarily of the Wilsons Leather, G.H. Bass and DKNY stores, substantially all of which are operated as outlet stores, as well as a smaller number of Karl Lagerfeld Paris and Calvin Klein Performance stores. Sales through the Company’s owned websites, with the exception of Vilebrequin, are also included in the retail operations segment.

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

Three Months Ended July 31, 2019

    

Wholesale

    

Retail

    

Elimination (1)

    

Total

(In thousands)

Net sales

$

588,601

$

83,706

$

(28,415)

$

643,892

Cost of goods sold

395,728

44,810

(28,415)

412,123

Gross profit

192,873

38,896

231,769

Selling, general and administrative expenses

141,540

54,908

196,448

Depreciation and amortization

7,763

2,026

9,789

Gain on lease terminations

(1,393)

(1,393)

Operating profit (loss)

$

43,570

$

(16,645)

$

$

26,925

Three Months Ended July 31, 2018

    

Wholesale

    

Retail

    

Elimination (1)

    

Total

(In thousands)

Net sales

$

544,597

$

106,662

$

(26,561)

$

624,698

Cost of goods sold

362,756

56,959

(26,561)

393,154

Gross profit

181,841

49,703

231,544

Selling, general and administrative expenses

136,178

62,682

198,860

Depreciation and amortization

7,348

2,107

9,455

Operating profit (loss)

$

38,315

$

(15,086)

$

$

23,229

Six Months Ended July 31, 2019

    

Wholesale

    

Retail

    

Elimination (1)

    

Total

(In thousands)

Net sales

$

1,159,240

$

165,610

$

(47,406)

$

1,277,444

Cost of goods sold

767,308

89,709

(47,406)

809,611

Gross profit

391,932

75,901

467,833

Selling, general and administrative expenses

288,797

109,510

398,307

Depreciation and amortization

15,284

3,978

19,262

Gain on lease terminations

(2,222)

(2,222)

Operating profit (loss)

$

87,851

$

(35,365)

$

$

52,486

Six Months Ended July 31, 2018

    

Wholesale

    

Retail

    

Elimination (1)

    

Total

(In thousands)

Net sales

$

1,072,270

$

211,181

$

(47,010)

$

1,236,441

Cost of goods sold

704,331

113,049

(47,010)

770,370

Gross profit

367,939

98,132

466,071

Selling, general and administrative expenses

272,591

128,340

400,931

Depreciation and amortization

14,483

4,352

18,835

Operating profit (loss)

$

80,865

$

(34,560)

$

$

46,305

(1)Represents intersegment sales to the Company’s retail operations segment.

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The total assets for each of the Company’s reportable segments, as well as assets not allocated to a segment, are as follows:

    

July 31, 2019

    

July 31, 2018

    

January 31, 2019

(In thousands)

Wholesale

$

2,109,198

$

1,880,348

$

1,834,610

Retail

362,595

205,268

190,996

Corporate

240,643

151,018

182,452

Total assets

$

2,712,436

$

2,236,634

$

2,208,058

Note 9 – Stockholders’ Equity

The changes in stockholders’ equity for the three and six months ended July 31, 2019 and 2018 are as follows (in thousands):

Accumulated

Common

Additional

Other

Stock

Common

Paid-In

Comprehensive

Retained

Held In

    

Stock

    

Capital

    

Loss

    

Earnings

    

Treasury

    

Total

Balance as of April 30, 2019

$

264

$

456,835

$

(18,421)

$

761,344

$

(13,196)

$

1,186,826

Equity awards exercised/vested, net

(4,082)

4,158

76

Share-based compensation expense

5,122

5,122

Taxes paid for net share settlements

(1,680)

(1,680)

Other comprehensive gain, net

1,573

1,573

Repurchases of common stock

(35,216)

(35,216)

Net income

11,119

11,119

Balance as of July 31, 2019

$