G-III Beats And Raises But Shares Struggle
It was no surprise for G-III Apparel (NASDAQ: GIII) to have a strong quarter because the entire retail sector showed strength in this reporting cycle. It was a surprise to see price action make such an abrupt about-face after gapping up at the open and then moving higher in early trading. The reason, however, may come down to short-selling. G-III Apparel’s results are strong and the guidance is good but no more than what the market was expecting given the conditions and short-interest was already high going into the report. The early pop in share prices turned out to be an opportunity for short-sellers, profit-takers, speculators, or a combination thereof and they took full advantage. The key takeaway from all this is that shares of G-III Apparrel have been range-bound for the last few months and it looks like they still are.
Strong Results No Balm For G-III Apparel Share Prices
G-III Apparel had a good quarter there is no doubt with revenue rising 23.4% over last year to hit $1.02 billion. The bad news is that the revenue is only as-expected leaving it short for a market expecting outperformance. The caveat is that the bar was set high by the market so the decline in share prices may just be a short-term stumble. It also includes the impact of stores that were closed during the last year.
Moving down the report, the results are equally tepid with margins shrinking but less than expected. The gross margin was contracted by 180 basis points due to higher costs but was offset by a 350 basis point reduction in SG&A as a percentage of sales. The good news is the combined impact on the bottom line was positive and left GAAP earnings well above the consensus. The $2.16 in GAAP EPS is up 67% from last year and beat the consensus by $0.37.
The guidance may be the best part of the entire report and really no reason for share prices to behave the way they are. The company upped the guidance for full-year 2022 to above the consensus for both revenue and earnings and we see upside risk in the outlook. The revenue of $2.77 compares well against the $2.68 Marketbeat.com consensus figure but the earnings guidance is what really caught our attention. The $3.65 to $3.75 in adjusted earnings is a substantial improvement from the previous range which brackets the consensus of $3.25.
Morris Goldfarb, G-III’s Chairman, and Chief Executive Officer, said, “The strong momentum in our business in the first half continues, as we delivered outstanding third-quarter results with both top and bottom line exceeding our guidance. Given the strong demand we are seeing across our brands, we are well-positioned for the holiday season. We are raising our full-year guidance and expect to deliver our highest annual earnings in our company’s history.”
The Technical Outlook: G-III Results Spark Volatility
The price action in G-III Apparel has been range-bound for the past few months and nothing about that has changed. What has changed is that volatility is picking up with shares up more than 5% at the high of the day following the report but closing near the low of the session and below the open. The move confirms resistance at the $32 level that could drive price action back to the bottom of the range. A move below $27 might be bearish but until then range-bound is the name of the game.
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