What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-09-09 compared with 2022-06-07 · 161 added, 135 removed, 190 unchanged (61% of the section changed)

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For example, our fiscal year ending January 31, 2023 is referred to as “fiscal 2023.”

Vilebrequin, KLH, KLNA, Fabco and Sonia Rykiel report results on a calendar year basis rather than on the January 31 fiscal year basis used by G-III.

Accordingly, the results of Vilebrequin, KLH, KLNA, Fabco and Sonia Rykiel are, and will be, included in our financial statements for the quarter ended or ending closest to G-III’s fiscal quarter end.

For example, with respect to our 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.

We account for our investment in each of KLH and KLNA using the equity method of accounting.

As of May 31, 2022, KLH and KLNA are accounted for as consolidated wholly-owned subsidiaries of the Company.

The Company’s retail operations segment uses a 52/53-week fiscal year.

For fiscal 2023 and 2022, the three-month period for the retail operations segment were each 13-week periods and ended on April 30, 2022 and May 1, 2021, respectively.

Vilebrequin, KLH, Fabco and Sonia Rykiel report results on a calendar year basis rather than on the January 31 fiscal year basis used by G-III.

Accordingly, the results of Vilebrequin, KLH, Fabco and Sonia Rykiel are, and will be, included in our financial statements for the quarter ended or ending closest to G-III’s fiscal quarter end.

For example, with respect to our results for the six-month period ended July 31, 2022, the results of Vilebrequin, Fabco and Sonia Rykiel are included for the six-month period ended June 30, 2022 and for KLH for the period from the date of acquisition to June 30, 2022.

We accounted for our investment in each of KLH and KLNA using the equity method of accounting through May 30, 2022.

As of May 31, 2022, KLH is accounted for as our consolidated wholly-owned subsidiary and KLNA is an indirect wholly-owned subsidiary of ours.

Our retail operations segment uses a 52/53-week fiscal year.

For fiscal 2023 and 2022, the three and six-month period for the retail operations segment were each 13-week and 26-week periods and ended on July 30, 2022 and August 1, 2021, respectively.

Various statements contained in this Form 10-Q, in future filings by us with the SEC, in our press releases and in oral statements made from time to time by us or on our behalf constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

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● dependence on existing management;

● our ability to make strategic acquisitions and possible disruptions from acquisitions;

● our ability to make strategic acquisitions and possible disruptions from acquisitions, including our recent acquisition of the remaining interest in KLH;

● risks of operating through joint ventures;

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We are not only licensees, but also brand owners, and we distribute our products through multiple channels.

Our own proprietary brands include DKNY, Donna Karan, Vilebrequin, G.H.

Bass, Eliza J, Jessica Howard, Andrew Marc, Marc New York, Wilsons Leather, Sonia Rykiel and, effective as of May 31, 2022, Karl Lagerfeld.

We sell products under an extensive portfolio of well-known licensed brands, including Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris (prior to it becoming a wholly-owned brand as of May 31, 2022), Levi’s, Guess?, Kenneth Cole, Cole Haan, Vince Camuto and Dockers.

Our own proprietary brands include DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin, G.H.

Bass, Eliza J, Jessica Howard, Andrew Marc, Marc New York, Wilsons Leather and Sonia Rykiel.

We sell products under an extensive portfolio of well-known licensed brands, including Calvin Klein, Tommy Hilfiger, Levi’s, Guess?, Kenneth Cole, Cole Haan, Vince Camuto and Dockers.

Through our team sports business, we have licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League and over 150 U.S.

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In addition, we sell to leading online retail partners such as Amazon, Fanatics, Zalando and Zappos.

We also distribute apparel and other products directly to consumers through our own DKNY and Karl Lagerfeld Paris retail stores, as well as through our digital channels for the DKNY, Donna Karan, Karl Lagerfeld Paris, G.H.

We also distribute apparel and other products directly to consumers through our DKNY, Karl Lagerfeld, Karl Lagerfeld Paris and Vilebrequin retail stores, as well as through our digital channels for the DKNY, Donna Karan, Karl Lagerfeld, Karl Lagerfeld Paris, Vilebrequin, G.H.

Bass, Andrew Marc, Wilsons Leather and Sonia Rykiel businesses.

We operate in fashion markets that are intensely competitive.

Our ability to continuously evaluate and respond to changing consumer demands and tastes, across multiple market segments, distribution channels and geographic areas is critical to our success.

Our ability to continuously evaluate and respond to changing consumer demands and tastes, across multiple market segments, distribution channels and geographic areas is critical to

Although our portfolio of brands is aimed at diversifying our risks in this regard, misjudging shifts in consumer preferences could have a negative effect on our business.

Our success in the future will depend on our ability to design

products that are accepted in the marketplace, source the manufacture of our products on a competitive basis, and continue to diversify our product portfolio and the markets we serve.

Our success in the future will depend on our ability to design products that are accepted in the marketplace, source the manufacture of our products on a competitive basis, and continue to diversify our product portfolio and the markets we serve.

We believe that consumers prefer to buy brands they know, and we have continually sought to increase the portfolio of name brands we can offer through different tiers of retail distribution, for a wide array of products at a variety of price points.

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Recent Developments

On April 29, 2022, we entered into a share purchase agreement (the “Purchase Agreement”) with a group of private and public investors pursuant to which we agreed to acquire, on the terms set forth and subject to the conditions set forth in the Purchase Agreement, the remaining 81% in interests in KLH that we did not already own, for an aggregate consideration of €200 million ($214 million) in cash, subject to certain adjustments.

On April 29, 2022, we entered into a share purchase agreement (the “Purchase Agreement”) with a group of investors pursuant to which we agreed to acquire, on the terms set forth and subject to the conditions set forth in the Purchase Agreement, the remaining 81% in interests in KLH that we did not already own, for an aggregate consideration of €202.0 million ($216.8 million) in cash, subject to certain adjustments.

The acquisition closed on May 31, 2022.

We funded the purchase price from cash on hand.

The addition of the iconic Karl Lagerfeld fashion brand to the G-III portfolio advances several of our key priorities, including increasing the direct ownership of brands and their licensing opportunities and further diversifying our global presence.

See Note 6 – Karl Lagerfeld Acquisition in the accompanying Notes to Condensed Consolidated Financial Statements for more information.

The addition of the iconic Karl Lagerfeld fashion brand to the G-III portfolio advances several of our key priorities, including increasing the direct ownership of brands, capitalizing on their licensing opportunities and further diversifying our global presence.

This acquisition represents a significant opportunity to expand our international growth by further developing our European-based brands, which already include Vilebrequin and Sonia Rykiel.

We also believe that Karl Lagerfeld’s existing digital channel presence should enable us to enhance our omni-channel business and further accelerate our digital priorities.

We also believe that Karl Lagerfeld’s existing digital channel presence could enable us to enhance our omni-channel business and further accelerate our digital priorities.

The influential legacy of the Karl Lagerfeld brand embodies a creative expression that aligns with our goal to provide innovative products for our customers.

As of May 31, 2022, KLH is a consolidated wholly-owned subsidiary of ours.

Prior to May 31, 2022, we accounted for our investment in KLH using the equity method of accounting.

Once KLH becomes wholly-owned by the Company, KLNA will become an indirect wholly owned subsidiary of the Company.

We report based on two segments:

wholesale operations and retail operations.

Our wholesale operations segment includes sales of products to retailers under 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 DKNY, Donna Karan, Vilebrequin, G.H.

Our wholesale operations segment includes sales of products to retailers under owned, licensed and private label brands, as well as sales related to the Vilebrequin and Karl Lagerfeld businesses, other than sales of the Karl Lagerfeld Paris brand from retail stores and digital outlets.

Wholesale revenues also include royalty revenues from license agreements related to our owned trademarks including DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin, G.H.

Bass and Andrew Marc.

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Trends Affecting Our Business

Impact of COVID-19

The COVID-19 pandemic has affected businesses around the world since the first quarter of fiscal 2021.

Federal, state and local governments in the United States and around the world, as well as private entities, mandated various restrictions, including closing of retail stores and restaurants, travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to the virus.

The response to the COVID-19 pandemic negatively affected the global economy, disrupted global supply chains and created significant disruption of the financial and retail markets, including a disruption in consumer demand for apparel and accessories.

The COVID-19 pandemic continues to impact the global economy.

During the three months ended April 30, 2022, consumer demand for apparel and accessories, as well as other consumer discretionary spending, increased as compared to the comparable quarter in fiscal 2021.

While businesses reopened as stay at home orders were lifted and various restrictions on the operation of retail businesses were loosened, the continued economic impact of the COVID-19 pandemic remains uncertain.

The spread of additional variants could result in the reimposition of restrictions on commercial and social activities that would adversely impact our business.

We have experienced significant improvements in our results of operations for fiscal 2022 and the first quarter of fiscal 2023 compared to fiscal 2021 which was severly impacted by COVID-19.

However, the COVID-19 pandemic could continue to adversely impact our business operations and results of operations.

The continued impact of the COVID-19 pandemic on our business operations remains uncertain and cannot be predicted.

The extent to which COVID-19 impacts our results will depend on continued developments in the United States and around the world in the public and private responses to the pandemic.

New information may emerge concerning the severity of the outbreak and the spread of variants, including the Delta, Omicron or other variants, of the COVID-19 virus in locations that are important to our business.

Actions taken to contain COVID-19 or treat its impact may change or become more restrictive if additional waves of infections occur.

Industry Trends

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As sales of apparel through digital channels continue to increase, we are developing additional digital marketing initiatives on our web sites and through social media.

We are investing in digital personnel, marketing, logistics, planning, distribution and other strategic opportunities to expand our digital footprint.

We are investing in digital personnel,

marketing, logistics, planning, distribution and other strategic opportunities to expand our digital footprint.

Our digital business consists of our own web platforms at www.dkny.com, www.donnakaran.com, www.ghbass.com, www.vilebrequin.com, www.andrewmarc.com, www.wilsonsleather.com and www.soniarykiel.com.

We also sell Karl Lagerfeld Paris products on our website, www.karllagerfeldparis.com.

We also sell Karl Lagerfeld Paris products on our www.karllagerfeldparis.com website and Karl Lagerfeld products on our www.karl.com website.

In addition, we sell to leading online retail partners such as Amazon, Fanatics, Zalando and Zappos and have made minority investments in two different e-commerce retailers.

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Exclusive brands are only made available to a specific retailer, and thus customers loyal to their brands can only find them in the stores of that retailer.

Consumers have shifted their apparel purchases based on their adjusted lifestyle needs resulting from changes to the work environment and leisure activities caused by the COVID-19 pandemic.

We revised our product offerings in response to the pandemic-induced shift toward casual and comfortable work-from-home clothing, as well as to activewear and leisure attire.

We continue to revise our product lines to satisfy the changing needs of our retail customers and consumers as businesses have reopened offices and restrictions on social gatherings have been loosened.

These changes have resulted in an increase in demand for day and occasion dresses, as well as career wear such as suit separates.

We are working diligently to satisfy this demand from our retail partners and consumers.

We have attempted to respond to general trends in our industry by continuing to focus on selling products with recognized brand equity, by attention to design, quality and value and by improving our sourcing capabilities.

We have also responded with the strategic acquisitions made by us and new license agreements entered into by us that added to our portfolio of

licensed and proprietary brands and helped diversify our business by adding new product lines and expanding distribution channels.

We have also responded with the strategic acquisitions made by us, such as our recent purchase of the interests not owned by us that resulted in Karl Lagerfeld becoming a wholly-owned subsidiary, and new license agreements entered into by us that added to our portfolio of licensed and proprietary brands and helped diversify our business by adding new product lines and expanding distribution channels.

We believe that our broad distribution capabilities help us to respond to the various shifts by consumers between distribution channels and that our operational capabilities will enable us to continue to be a vendor of choice for our retail partners.

Inflationary pressures have impacted our industry.

Beginning in fiscal 2022 and continuing in the current fiscal year, we have experienced inflationary pressures, most significantly related to our freight costs as discussed below under “Supply Chain” .

Inflationary pressures have impacted the entire economy, including our industry.

We are experiencing increased costs in many aspects of our business, including our freight costs as discussed below under “Supply Chain” .

We expect inflationary pressures to continue to impact our business throughout fiscal 2023.

We have implemented selected price increases on our products.

We expect to continue to implement selected price increases in an effort to mitigate the effect of higher costs, although, the impact of price increases on consumer demand and on our business and results of operations is uncertain.

The effects of the COVID-19 pandemic on the shipping industry have negatively impacted our ability to ensure that we are able to import our product in a manner that allows for timely delivery to our customers.

Congestion at ports of loading and ports of entry have caused significant changes to the itineraries of our steamship carriers and caused us to consider alternate service routes.

These alternate routes would require additional trucking for us and our customers.

We have implemented price increases on many of our products.

Our price increases are an effort to mitigate the effect of higher costs, although, the impact of price increases on consumer demand and on our business and results of operations is uncertain.

Foreign currency fluctuation

Our consolidated operations are impacted by the relationships between our reporting currency, the U.S.

Dollar, and those of our non-United States subsidiaries whose functional/local currency is other than the U.S.

Dollar, primarily the Euro.

We continue to expect volatility in the global foreign currency exchange rates, which may have a negative impact on the reported results of certain of our non-United States subsidiaries in the future, when translated to the U.S.

Numerous factors disrupting the shipping industry have negatively affected transit times from our overseas suppliers, as well as our ability to ensure that we are able to import our product in a manner that allows for timely delivery to our customers.

Congestion at ports of origin and ports of entry have caused significant changes to the itineraries of our steamship carriers.

Truck driver shortages, shortages of truck equipment such as the chassis that the containers are transported on, and the inability of ports to provide reliable pick uptimes, have also negatively impacted our ability to timely receive goods.

Contractual shipping rates have increased as a result of increased demand for container space and the logistical delays experienced by the shipping industry.

Our costs have increased as a result of higher contractual shipping rates and the need to purchase additional container space on the secondary market at higher spot rates.

Terminals are also now imposing additional fees on importers not picking up containers on time, even when equipment and labor shortages negatively affect the ability of importers to pick up in a timely manner.

If we are unable to secure container space on a vessel due to limited availability, we may experience delays in shipping product from our overseas suppliers to our customers.

Furthermore, even when we are able to secure space, ports around the world are experiencing congestion, slowing transit times of product through ports of entry which negatively affects our ability to timely receive and deliver product to our retail partners and customers.

Our longstanding relationships with our steamship carriers have facilitated our ability to secure space on vessels as demand for apparel increases, although at rates that are significantly higher than in the past.

We have increased prices on certain of our products to partially offset higher freight and other costs.

We believe that the strength of our portfolio of global power brands will allow us to selectively raise prices in an effort to mitigate the effect of increased transportation and other costs.

Our shipping costs have increased as a result of higher contractual shipping rates resulting from increased demand for container space and the need to purchase additional container space on the secondary market at spot rates.

While increased spot rates have moderated, they are still higher than pre-pandemic levels.

Our ability to secure container space has

However, even when we are able to secure space, ports around the world are experiencing congestion, slowing transit times of product through ports of origin and ports of entry which negatively affects our ability to timely receive and deliver product to our retail partners and customers.

As a result of these supply chain disruptions, we have accelerated production schedules to allow for more lead time and accommodate the anticipated extended transit times from our overseas suppliers in an effort to import our product in a manner that allows for timely delivery to our customers.

Product has been received earlier than anticipated due to the accelerated production schedules and transit times that were not delayed as much as planned.

As a result, our inventory levels are higher than expected.

The elevated inventory levels are resulting in storage and process capacity pressures within our distribution centers.

We expect these issues to continue into the first half of calendar 2023.

As a result of these expected pressures, our operations may be less efficient, and as a result, we expect to incur additional labor, outside storage and other costs.

We have recently executed new contracts with two of our long-term steamship carrier partners and are continuing to pursue new carrier relationships for additional capacity.

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We are actively managing shipments based on delivery dates to better utilize contracted cargo space and attempt to reduce our reliance on the secondary market.

We have also accelerated production schedules to allow for longer lead times in anticipation of the aforementioned delays.

Impact of COVID-19

The continued impact of the COVID-19 pandemic on our business operations remains uncertain and cannot be predicted.

The extent to which COVID-19 impacts our results will depend on continued developments in the United States and around the world in the public and private responses to the pandemic.

Actions taken to contain COVID-19 or treat its impact may change or become more restrictive if additional waves of infections occur.

War in Ukraine

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As such, we do not expect that the war in Ukraine will have a direct material negative impact on our results of operations in fiscal 2023.

However, the war has also led to, and may lead to further, broader unfavorable macroeconomic implications, including unfavorable foreign exchange rates, increases in fuel prices, food shortages and volatility in financial markets.

These implications of the war in Ukraine could have a material adverse effect on our business and our results of operations.

Results of Operations

Three months ended April 30, 2022 compared to three months ended April 30, 2021

Net sales for the three months ended April 30, 2022 increased to $688.8 million from $519.9 million in the same period last year.

Three months ended July 31, 2022 compared to three months ended July 31, 2021

Net sales for the three months ended July 31, 2022 increased to $605.2 million from $483.1 million in the same period last year.

Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment increased to $680.9 million for the three months ended April 30, 2022 from $511.5 million in the comparable period last year.

This increase is primarily the result of a $67.0 million increase in net sales of Calvin Klein licensed products, a $27.9 million increase in net sales of our DKNY and Donna Karan products, a $20.9 million increase in net sales of Karl Lagerfeld Paris licensed products and a $14.8 million increase in net sales of Tommy Hilfiger licensed products.

The increase in sales of Calvin Klein products was primarily related to dresses, women’s suits, handbags and jeanswear.

Net sales of our wholesale operations segment increased to $588 million for the three months ended July 31, 2022 from $467 million in the comparable period last year.

This increase is primarily the result of a $32.3 million increase in net sales of our DKNY and Donna Karan products, a $23.1 million increase in net sales of Calvin Klein licensed products, a $9.9 million increase in net sales of Karl Lagerfeld Paris products and a $3.6 million increase in net sales of Tommy Hilfiger licensed products.

The increase in sales of DKNY/Donna Karan products was primarily related to dresses, handbags and jeanswear.

The increase in sales of Calvin Klein products was primarily related to dresses, women’s suits and handbags.

The increase in sales of Karl Lagerfeld Paris products was primarily related to handbags, men’s outerwear and sportswear.

The increase in sales of Tommy Hilfiger products was primarily related to suits, jeanswear and women’s outerwear.

Additionally, the inclusion of the results of KLH for one month in the period increased net sales of our wholesale operations segment by $17.3 million.

Net sales of our retail operations segment increased to $31.1 million for the three months ended July 31, 2022 from $27.3 million in the same period last year.

This increase is primarily due to an increase in our store count in the current year.

The number of retail stores operated by us increased from 50 at July 31, 2021 to 59 at July 31, 2022.

In addition, the continued recovery from the COVID-19 pandemic resulted in increased store traffic and comparable store sales increases during the three months ended July 31, 2022 compared to the same period last year.

Gross profit was $228.9 million, or 37.8% of net sales, for the three months ended July 31, 2022, compared to $192.9 million, or 39.9% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 36.2% in the three months ended July 31, 2022 compared to 38.3% in the same period last year.

The gross profit percentage in the current year period was negatively impacted by inflationary pressure on product costs and increased freight costs, partially offset by benefits from less promotional activity and the implementation of price increases by us.

The gross profit percentage in our retail operations segment was 51.6% for the three months ended July 31, 2022 compared to 51.9% for the same period last year.

Selling, general and administrative expenses increased to $191.0 million in the three months ended July 31, 2022 from $146.8 million in the same period last year.

The increase in expenses was primarily due to an increase of $15.8 million in compensation expense, primarily from increased salary and bonus expense accruals.

The increase in expenses was also due to a $13.5 million increase in third-party warehouse and facility expenses primarily related to higher inventory levels and increased shipping volume and a $7.5 million increase in advertising related to increased sales.

Additionally, the inclusion of the results of KLH for one month in the period increased selling, general and administrative expenses by $10.4 million which included $5.0 million of compensation expense, primarily related to bonus accruals, and $1.0 million of acquisition related expenses.

Depreciation and amortization was $6.7 million for the three months ended July 31, 2022 compared to $7.1 million in the same period last year.

This decrease primarily relates to a reduction in capital expenditures during the COVID-19 pandemic.

Other income was $30.3 million in the three months ended July 31, 2022 compared to other income of $2.0 million for the same period last year.

Other income in the current period consisted of a gain of $30.9 million during the three months ended July 31, 2022 as a result of the remeasurement of our previously held 19% investment in KLH and 49% investment in KLNA as of the effective date of the acquisition.

We recorded $2.0 million of foreign currency losses during the three months ended July 31, 2022 compared to foreign currency losses of $0.4 million during the same period last year.

We recorded $0.3 million in income from unconsolidated affiliates during the three months ended July 31, 2022 compared to $1.8 million in income from unconsolidated affiliates in the same period last year.

In addition, we recorded $1.0 million in income from net gains on investments in equity securities.

Additionally, we recorded other income of $0.6 million from non-refundable European government-backed grants received by Vilebrequin for COVID-19 relief during the three months ended July 31, 2022.

Interest and financing charges, net, were $12.6 million for both the three months ended July 31, 2022 and 2021.

Income tax expense was $13.0 million for the three months ended July 31, 2022 compared to $9.2 million for the same period last year.

Our effective tax rate decreased to 26.4% in the current year’s quarter from 32.6% in last year’s comparable quarter.

This decrease is primarily due to an increase in forecasted foreign pretax income, which is taxed at a lower tax rate compared to the tax rates associated with income based in the United States.

Six months ended July 31, 2022 compared to six months ended July 31, 2021

Net sales for the six months ended July 31, 2022 increased to $1.29 billion from $1.0 billion in the same period last year.

Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment increased to $1.27 billion for the six months ended July 31, 2022 from $978.5 million in the comparable period last year.

This increase is primarily the result of a $90.1 million increase in net

sales of Calvin Klein licensed products, a $60.2 million increase in net sales of our DKNY and Donna Karan products, a $30.8 million increase in net sales of Karl Lagerfeld Paris products and a $18.4 million increase in net sales of Tommy Hilfiger licensed products.

The increase in sales of Calvin Klein products was primarily related to dresses, women’s suits and handbags.

The increase in sales of DKNY/Donna Karan products was primarily related to dresses, handbags and swimwear.

The increase in sales of Karl Lagerfeld Paris products was primarily related to handbags, men’s outerwear and sportswear.

The increase in sales of Tommy Hilfiger products was primarily related to jeanswear and dresses.

Net sales of our retail operations segment increased to $27.9 million for the three months ended April 30, 2022 from $19.4 million in the same period last year.

The increase in sales of Tommy Hilfiger products was primarily related to suits, jeanswear and dresses.

Additionally, the inclusion of the results of KLH for one month in the period increased net sales of our wholesale operations segment by $17.3 million.

Net sales of our retail operations segment increased to $59.0 million for the six months ended July 31, 2022 from $46.7 million in the same period last year.

This increase is primarily due to an increase in our store count in the current year.

The number of retail stores operarted by us increased from 50 at April 30, 2021 to 60 at April 30, 2022.

In addition, the continued recovery from the COVID-19 pandemic resulted in increased store traffic and comparable store sales during the three months ended April 30, 2022 compared to the same period last year.

Gross profit was $246.0 million, or 35.7% of net sales, for the three months ended April 30, 2022, compared to $195.5 million, or 37.6% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 34.1% in the three months ended April 30, 2022 compared to 36.3% in the same period last year.

The number of retail stores operated by us increased from 50 at July 31, 2021 to 59 at July 31, 2022.

Gross profit was $475.0 million, or 36.7% of net sales, for the six months ended July 31, 2022, compared to $388.3 million, or 36.7% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 35.1% in the six months ended July 31, 2022 compared to 37.2% in the same period last year.

The gross profit percentage in our retail operations segment was 49.9% for the three months ended April 30, 2022 compared to 50.3% for the same period last year.

Selling, general and administrative expenses increased to $185.4 million in the three months ended April 30, 2022 from $141.6 million in the same period last year.

The increase in expenses was primarily due to an increase of $15.5 million in compensation expense, primarily from increased salary and bonus expense.

The increase in expenses was also due to a $7.9 million increase in contractual advertising, a $4.2 million increase in facility expenses and a $2.9 million increase in third-party warehouse expenses related to increased sales.

The gross profit percentage in our retail operations segment was 50.8% for the six months ended July 31, 2022 compared to 51.3% for the same period last year.

Selling, general and administrative expenses increased to $376.5 million in the six months ended July 31, 2022 from $288.4 million in the same period last year.

The increase in expenses was primarily due to an increase of $31.3 million in compensation expense, primarily from increased salary and bonus expense accruals.

The increase in expenses was also due to a $20.6 million increase in third-party warehouse and facility expenses and a $15.5 million increase in advertising primarily related to increased sales and inventory levels resulting from our accelerated production schedules.

In addition, professional fees increased $3.8 million primarily due to expenses associated with the acquisition of the Karl Lagerfeld business.

Depreciation and amortization was $6.1 million for the three months ended April 30, 2022 compared to $7.0 million in the same period last year.

The inclusion of the results of KLH for one month in the period increased selling, general and administrative expenses by $10.4 million which included $5.0 million of compensation expense, primarily related to bonus accruals, and $1.0 million of acquisition related expenses.

Depreciation and amortization was $12.8 million for the six months ended July 31, 2022 compared to $14.1 million in the same period last year.

This decrease primarily relates to a reduction in capital expenditures during the COVID-19 pandemic.

Other loss was $2.7 million in the three months ended April 30, 2022 compared to other income of $1.8 million for the same period last year.

The change is primarily due to $3.4 million of foreign currency losses during the three months ended April 30, 2022 compared to foreign currency losses of $0.2 million during the same period last year.

Foreign currency losses during the three months ended April 30, 2022 include $1.9 million of foreign currency losses related to the acquisition of the Karl Lagerfeld business and $1.3 million of foreign currency losses resulting from the strengthening of the U.S.

Dollar against foreign currencies.

We recorded other income of $1.2 million from non-refundable European government-backed grants received by Vilebrequin for COVID-19 relief compared to other income of $1.5 million from these government-backed grants in the same period last year.

In addition, we recorded $0.7 million in income from unconsolidated affiliates during the three months ended April 30, 2022 compared to $0.5 million in income from unconsolidated affiliates in the same period last year.

Interest and financing charges, net, for the three months ended April 30, 2022 were $12.2 million compared to $12.0 million for the same period last year.

Income tax expense was $9.0 million for the three months ended April 30, 2022 compared to $10.3 million for the same period last year.

Our effective tax rate decreased to 22.7% in the current year’s quarter from 28.0% in last year’s comparable quarter.

This decrease is primarily due to an increase in forecasted foreign pre-tax income, which is taxed at a lower rate compared to the tax rates associated with income based in the United States.

The decrease also included a $1.3 million discrete tax benefit related to a foreign tax credit carryback refund which was recorded in the first quarter of fiscal 2023.

Other income was $27.6 million in the six months ended July 31, 2022 compared to $3.8 million for the same period last year.

Other income in the current period consisted of a gain of $30.9 million during the six months ended July 31, 2022 as a result of the remeasurement of our previously held 19% investment in KLH and 49% interest in KLNA as of the effective date of the acquisition.

We recorded $5.4 million of foreign currency losses during the six months ended July 31, 2022 compared to foreign currency losses of $0.6 million during the same period last year.

We recorded $1.0 million in income from unconsolidated affiliates during the six months ended July 31, 2022 compared to $2.3 million in income from unconsolidated affiliates in the same period last year.

We recorded other income of $1.2 million from non-refundable European government-backed grants received by Vilebrequin for COVID-19 during the six months ended July 31, 2022 compared to $2.1 million during the same period last year.

Interest and financing charges, net, for the six months ended July 31, 2022 were $24.8 million compared to $24.6 million for the same period last year.

Income tax expense was $22.0 million for the six months ended July 31, 2022 compared to $19.5 million for the same period last year.

Our effective tax rate decreased to 24.8% in the current year’s period from 30.0% in last year’s comparable period.

This decrease is primarily due to an increase in forecasted foreign pretax income, which is taxed at a lower tax rate compared to the tax rates associated with income based in the United States.

In addition, a $1.3 million tax benefit related to the foreign tax credit was recorded in the first quarter of this year.

Liquidity and Capital Resources

Cash Availability

We rely on our cash flows generated from operations, cash and cash equivalents and the borrowing capacity under our revolving credit facility to meet the cash requirements of our business.

We rely on our cash flows generated from operations in most periods, cash and cash equivalents and the borrowing capacity under our revolving credit facility to meet the cash requirements of our business.

The cash requirements of our business are primarily related to the seasonal buildup in inventories, compensation paid to employees, payments to vendors in the normal course of business, capital expenditures, interest payments on debt obligations and income tax payments.

We have also used cash to make minority investments in private companies and will use cash this year to acquire the remaining portion of the Karl Lagerfeld business.

As of April 30, 2022, we had cash and cash equivalents of $438.4 million and availability under our revolving credit facility of approximately $560 million.

Subsequent to April 30, 2022, we used approximately $214 million of cash to acquire the Karl Lagerfeld business.

As of April 30, 2022, we were in compliance with all covenants under our debt agreements.

We have also used cash to make minority investments in private companies and to acquire the remaining portion of the Karl Lagerfeld business.

As of July 31, 2022, we had cash and cash equivalents of $151.0 million and availability under our revolving credit facility of approximately $580 million.

As of July 31, 2022, we were in compliance with all covenants under our debt agreements.

Senior Secured Notes

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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, we 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, we 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, plus accrued and unpaid

interest, if any, to, but excluding, the applicable redemption date.

In addition, at any time prior to August 15, 2022, we 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, we 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.

We 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, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

If we experience a Change of Control (as defined in the Indenture), we are 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 our ability and the ability of our restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other restricted payments, make certain investments, incur restrictions on the ability of our 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 our 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 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.

We incurred debt issuance costs totaling $8.5 million related to the Notes.

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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, we are required

to pay a commitment fee to the lenders under the credit agreement with respect to the unutilized commitments.

In addition to paying interest on any outstanding borrowings under the ABL Credit Agreement, we are 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.

As of July 31, 2022, interest under the ABL Credit Agreement was being paid at an average rate of 6.05% per annum.

The revolving credit facility contains covenants that, among other things, restrict our ability to, subject to specified exceptions, incur additional debt;

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In certain circumstances, the revolving credit facility also requires us 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 ofApril 30, 2022, the Company was in compliance with these covenants.

As of April 30, 2022, we had no borrowings outstanding under the ABL Credit Agreement.

As of July 31, 2022, the Company was in compliance with these covenants.

As of July 31, 2022, we had $51.6 million of borrowings outstanding under the ABL Credit Agreement, all of which are classified as long-term liabilities.

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.

July 31, 2022, there were outstanding trade and standby letters of credit amounting to $7.9 million and $3.4 million, respectively.

At the date of the refinancing of the Prior Credit Agreement, we had $3.3 million of unamortized debt issuance costs remaining from the Prior Credit Agreement.

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LIBOR quotations could cease as of December 31, 2022.

We have discussed alternatives to LIBOR with the administrative agent to our revolving credit facility and we expect that if LIBOR can no longer be used as the indexed interest rate, we will be able to use a viable alternative such as SOFR.

We do not expect a material change to our interest expense or results of operations if LIBOR is no longer available.

We have discussed alternatives to LIBOR with the administrative agent under our ABL Credit Agreement and we expect that if LIBOR can no longer be used as the reference rate, we will be able to use an alternative such as the Secured Overnight Financing Rate, known as SOFR.

We do not expect a material change to our interest expense or results of operations if LIBOR is no longer available as a reference rate under our ABL Credit Agreement.

We issued to LVMH, as a portion of the consideration for the acquisition of DKI, a junior lien secured promissory note in favor of LVMH in the principal amount of $125 million (the “LVMH Note”) that bears interest at the rate of 2% per year.

$75 million of the principal amount of the LVMH Note is due and payable on June 1, 2023 and $50 million of such principal amount is due and payable on December 1, 2023.

$75 million of the principal amount of the LVMH Note is due and payable on June 1, 2023 and therefore has been recorded within current portion of notes payable on the condensed consolidated balance sheets and $50 million of such principal amount is due and payable on December 1, 2023.

Based on an independent valuation, it was determined that the LVMH Note should be treated as having been issued at a discount of $40 million in accordance with ASC 820 — Fair Value Measurements .

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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 under European state backed loans that were part of COVID-19 relief

In the aggregate, the Company is currently required to make quarterly installment payments of €0.2 million.

Additionally, Sonia Rykiel and KLH borrowed funds under 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 principal in the amount of €0.2 million.

Interest on the outstanding principal amount of the unsecured loans accrues at a fixed rate equal to 0% to 3.0% 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.

As of July 31, 2022, the Company had an aggregate outstanding balance of €7.6 million ($8.0 million) under these unsecured loans.

Overdraft Facilities

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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 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 €2.8 million ($3.1 million) drawn under these facilities.

As part of a COVID-19 relief program, TRB and its subsidiaries have also entered into several state backed

overdraft 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 July 31, 2022, TRB had an aggregate €3.1 million ($3.2 million) drawn under these facilities.

Foreign Credit Facility

KLH has a credit agreement with ABN AMRO Bank N.V.

with a credit limit of €15.0 million which is secured by specified assets of KLH.

Borrowings bear interest at the Euro Interbank Offered Rate (“EURIBOR”) plus a margin of 1.7%.

As of July 31, 2022, KLH had €0.4 million ($0.4 million) of borrowings outstanding under this credit facility.

Outstanding Borrowings

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The primary sources to meet our operating cash requirements have been borrowings under this credit facility and cash generated from operations.

We had no borrowings outstanding under our revolving credit facility at April 30, 2022 and 2021.

We had $400 million in borrowings outstanding under the Notes at April 30, 2022 and April 30, 2021, respectively.

Our contingent liability under open letters of credit was approximately $22.2 million and $14.9 million at April 30, 2022 and 2021, respectively.

In addition to the amounts outstanding under these two loan agreements, at April 30, 2022 and 2021, we had $125 million of face value principal amount outstanding under the LVMH Note.

As of April 30, 2022 and 2021, we had an aggregate of €7.1 million ($7.8 million) and €7.5 million ($8.8 million) outstanding under the Company’s various unsecured loans.

As of April 30, 2022 and 2021, we also had €2.8 million ($3.1 million) and €3.3 million ($3.9 million) outstanding under Vilebrequin’s overdraft facilities.

We had cash and cash equivalents of $438.4 million at April 30, 2022 and $396.3 million at April 30, 2021.

We had no borrowings outstanding under our revolving credit facility at July 31, 2022 and 2021.

We had $400 million in borrowings outstanding under the Notes at July 31, 2022 and July 31, 2021, respectively.

Our contingent liability under open letters of credit was approximately $11.3 million and $13.2 million at July 31, 2022 and 2021, respectively.

In addition to the amounts outstanding under these two loan agreements, at July 31, 2022 and 2021, we had $125 million of face value principal amount outstanding under the LVMH Note.

As of July 31, 2022 and 2021, we had an aggregate of €7.6 million ($8.0 million) and €7.5 million ($8.9 million) outstanding under the Company’s various unsecured loans.

As of July 31, 2022 and 2021, we had €3.1 million ($3.2 million) and €3.8 million ($4.5 million) outstanding under Vilebrequin’s overdraft facilities.

As of July 31, 2022, we had €0.4 million ($0.4 million) outstanding under KLH’s foreign credit facility.

Share Repurchase Program

In March 2022, our Board of Directors authorized an increase in the number of shares covered by our share repurchase program to an aggregate amount of 10,000,000 shares.

Pursuant to this program, during the three months ended July 31, 2022, we acquired 811,874 of our shares of common stock for an aggregate purchase price of $16.6 million.

The timing and actual number of shares repurchased, if any, will depend on a number of factors, including market conditions and prevailing stock prices, and are subject to compliance with certain covenants contained in our loan agreement.

Share repurchases may take place on the open market, in privately negotiated transactions or by other means, and would be made in accordance with applicable securities laws.

No shares were repurchased during the three months ended April 30, 2022.

As of June 3 2022, we had 10,000,000 authorized shares remaining under this program and 48,225,361 shares of common stock outstanding.

As of September 6, 2022, we had 9,188,126 authorized shares remaining under this program and 47,486,633 shares of common stock outstanding.

Cash from Operating Activities

We generated $11.2 million in cash from operating activities during three months ended April 30, 2022, primarily as a result of our net income of $30.6 million and non-cash charges of $20.5 million relating to share-based compensation.

We also generated cash from decreases of $31.9 million in accounts receivable and an increase of $20.5 million in accrued income taxes.

These items were offset, in part, by a decrease of $55.1 million in accounts payable and accrued expenses and an increase of $37.9 million in inventories.

The changes in operating cash flow items varied in part from seasonal patterns in prior years.

Inventories, which normally decrease in the first quarter of our fiscal year, increased due to early purchasing activity by us in an attempt to mitigate the potential effects of supply chain disruptions.

The decrease in accounts payable and accrued expenses is primarily

attributable to vendor payments related to inventory purchases and the payment of year-end bonuses in our first fiscal quarter.

Accounts receivable decreased because we experience lower sales levels in our first quarter.

We used $109.9 million in cash from operating activities during the six months ended July 31, 2022, primarily as a result of an increase of $496.4 million in inventories, a decrease of $30.4 million in customer refund liabilities and a non-cash $30.9 million gain on our 19% investment in KLH and 49% investment in KLNA.

These items were offset, in part, by our net income of $67.0 million and non-cash charges consisting primarily of $25.2 million relating to share-based compensation and depreciation and amortization of $12.8 million, as well as an increase of $182.5 million in accounts payable and accrued expenses and a decrease of $145.1 in accounts receivable.

The changes in operating cash flow items varied to some extent from seasonal patterns in prior years.

While inventories normally increase in the first half of our fiscal year, they increased more than normal due an acceleration in our production schedule in an attempt to mitigate the potential effects of supply chain disruptions and to accommodate the anticipated extended transit times from our overseas suppliers.

Accounts payable increased primarily due to the acceleration of inventory purchases.

Accounts receivable and customer refund liabilities decreased because we experience lower sales levels in our first and second quarters than in our third and fourth quarters.

Cash from Investing Activities

We used $29.3 million of cash in investing activities during three months ended April 30, 2022, primarily as a result of a $25.0 million minority investment in an e-commerce retailer.

In addition, we also had $4.3 million in capital expenditures primarily related to infrastructure and information technology expenditures and additional fixturing costs at department stores.

We used $224.6 million of cash in investing activities during the six months ended July 31, 2022, primarily as a result of cash paid, net of cash acquired, of $168.6 million for the acquisition to KLH.

We also used cash for a $25.0 million minority investment in an e-commerce retailer and a $22.4 million investment in equity securities.

In addition, we had $8.5 million in capital expenditures primarily related to infrastructure and information technology expenditures and additional fixturing costs at department stores.

Cash from Financing Activities

Net cash used in financing activities was $8.7 million during three months ended April 30, 2022, primarily as a result of taxes paid in connection with net share settlements.

Net cash provided by financing activities was $22.9 million during six months ended July 31, 2022 primarily as a result of borrowings of $57.9 million under our ABL Credit Agreement, partially offset by repayments of $8.6 million.

This borrowing was also offset, in part, by $16.6 million of cash used to repurchase 811,874 shares of our common stock under our share repurchase program and $9.8 million for taxes paid in connection with net share settlements of stock grants that vested.

Critical Accounting Policies

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The accounting policies and related estimates described in our Annual Report on Form 10-K for the year ended January 31, 2022 are those that depend most heavily on these judgments and estimates.

As of April 30, 2022, there have been no material changes to our critical accounting policies.

As of July 31, 2022, there have been no material changes to our critical accounting policies.

Quantitative and Qualitative Disclosures About Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis