What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-07 compared with 2022-09-09 · 198 added, 139 removed, 212 unchanged (61% of the section changed)

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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.

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

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

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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.

For fiscal 2023 and 2022, the three and nine-month period for the retail operations segment were each 13-week and 39-week periods and ended on October 29, 2022 and October 30, 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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● our dependence on the strategies and reputation of our licensors;

● any adverse change in our relationship with PVH and its Calvin Klein or Tommy Hilfiger brands would have a material adverse effect on our results of operations;

● any adverse change in our relationship with PVH Corp.

and its Calvin Klein or Tommy Hilfiger brands would have a material adverse effect on our results of operations;

● risks relating to our wholesale operations including, among others, maintaining the image of our proprietary brands, business practices of our customers that could adversely affect us and retail customer concentration;

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● the impact on our business of the imposition of tariffs by the United States government and the escalation of trade tensions between countries;

● risks related to the audit by the Canadian Border Services Agency;

● changes in tax legislation or exposure to additional tax liabilities could impact our business;

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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 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.

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 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.

Calvin Klein and Tommy Hilfiger License Extensions

On November 30, 2022, we announced the extension of licenses for Calvin Klein and Tommy Hilfiger products.

The following chart sets forth the new extension term, any potential renewal term or the existing current term for the Calvin Klein and Tommy Hilfiger license agreements.

This chart updates the chart contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022.

Date Potential Renewal

Calvin Klein (Men's outerwear)

December 31, 2025

Calvin Klein (Women's outerwear)

December 31, 2025

Calvin Klein (Women's dresses)

December 31, 2026

Calvin Klein (Women's suits)

December 31, 2026

December 31, 2029

Calvin Klein (Women's performance wear)

December 31, 2025

Calvin Klein (Women's better sportswear)

December 31, 2024

Calvin Klein (Better luggage)

December 31, 2027

Calvin Klein (Women's handbags and small leather goods)

December 31, 2026

Calvin Klein (Men's and women's swimwear)

December 31, 2026

Calvin Klein Jeans (Women's jeanswear)

December 31, 2024

Tommy Hilfiger (Men's and women's outerwear)

December 31, 2025

Tommy Hilfiger (Luggage)

December 31, 2027

Tommy Hilfiger (Women's sportswear)*

December 31, 2025

Tommy Hilfiger (Women's dresses)*

December 31, 2026

Tommy Hilfiger (Women's suits)*

December 31, 2026

December 31, 2029

December 31, 2023

Tommy Hilfiger x Leagues

December 31, 2025

These categories are part of the Tommy Hilfiger license agreement that is referred to as “Women’s apparel” in our Form 10-K.

We have separated these categories for presentation purposes in this chart as there are different term end dates for these categories in the amendment to the Women’s apparel license agreement.

We are dependent on sales of licensed products for a substantial portion of our revenues.

Net sales of products under the Calvin Klein and Tommy Hilfiger brands constituted approximately 48.2% of our net sales in the nine months ended October 31, 2022, approximately 50.7% of our net sales in fiscal 2022 and approximately 53.5% of our net sales in fiscal 2021.

The amendments to the license agreements for these products provide for staggered extensions by category that expire beginning December 31, 2024 and continuing through December 31, 2027.

PVH Corp., the owner of these two brands, has indicated that it intends to produce these products itself once the license agreements expire.

Unless we are able to increase the sales of our other products, acquire new businesses and/or enter into other license agreements covering different products, the inability to renew the Calvin Klein and Tommy Hilfiger license agreements would cause a significant decrease in our net sales and have a material adverse effect on our results of operations.

We continue to strategize near-term growth initiatives across our current owned and licensed brands including category, geographical and digital expansion.

Additionally, we are directing resources toward new growth areas, including building our own brands, broadening our European business, developing new licensing opportunities and continuing to seek to acquire new businesses.

Karl Lagerfeld Acquisition

On May 31, 2022, we acquired from a group of investors 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, after taking into account certain adjustments.

We funded the purchase price from cash on hand.

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 could enable us to enhance our omni-channel business and further accelerate our digital priorities.

The addition of the iconic Karl Lagerfeld fashion brand to the G-III portfolio of owned brands advances several of our strategic initiatives, 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 also include Vilebrequin and Sonia Rykiel.

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

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

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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.

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

Bass and Andrew Marc.

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We sell our products online through retail partners such as macys.com, nordstrom.com and dillards.com, each of which has a substantial online business.

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.

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 www.karllagerfeldparis.com website and Karl Lagerfeld products on our www.karl.com website.

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

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, www.soniarykiel.com, www.karllagerfeldparis.com and www.karl.com.

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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The financial difficulties of a retail customer of ours could result in reduced business with that customer.

We may also assume higher credit risk relating to receivables of a retail customer experiencing financial difficulty that could result in higher reserves for doubtful accounts or increased write-offs of accounts receivable.

We may also assume higher credit risk relating to receivables of a retail customer experiencing

financial difficulty that could result in higher reserves for doubtful accounts or increased write-offs of accounts receivable.

We attempt to mitigate credit risk from our customers by closely monitoring accounts receivable balances and shipping levels, as well as the ongoing financial performance and credit standing of customers.

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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, 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 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 our 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.

Inflation and Interest Rates

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 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.

We expect inflationary pressures to continue to impact our business throughout fiscal 2023 and fiscal 2024.

Recent historic high rates of inflation, including increased fuel and food prices, has led to a softening of consumer demand and increased promotional activity in our categories and may lead to further challenges to grow our sales.

Ongoing inflation may also negatively impact our cost structure and labor costs in the future.

The Federal Reserve recently raised interest rates multiple times in response to concerns about inflation and it may raise them again in the future.

Higher interest rates may increase the costs of our borrowing under our revolving credit facility, may increase economic uncertainty and may negatively affect consumer spending.

Volatility in interest rates may adversely affect our business or our customers.

If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms.

Foreign currency fluctuation

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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.

In addition, issues with respect to labor contracts for workers at certain ports on the west coast of the United States have also resulted in shifting delivery of goods to ports on the east coast of the United States which has caused increased delays at certain east coast ports.

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.

We expect that our existing carriers will manage the demand in a more efficient manner in fiscal 2023 and, as a result, our reliance on the secondary market will be reduced.

While increased

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

Our ability to secure container space has improved, however, ports around the world continue to experience 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 supply chain disruptions, we have accelerated production schedules to allow for more lead time and to 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.

As a result, our inventory levels are higher than in prior years.

Similar to companies in the apparel and other industries that rely on the importation of merchandise, we have accelerated production of our products, primarily in response to supply chain disruptions.

This has led to elevated inventory levels, resulting in storage and process capacity pressures within our distribution centers.

We sought additional warehouse capacity to facilitate our higher inventory levels but had not been able to secure sufficient additional warehouse space to accommodate the higher inventory levels prior to the end of our third fiscal quarter.

This was primarily due to negotiations we expected to complete that were either delayed or were terminated as we did not want to enter into expensive long-term commitments for such capacity.

The elevated inventory levels, lack of additional space in our warehouses, port congestion and the logistical challenges related to trucking all contributed to us incurring significant demurrage charges in our third fiscal quarter.

Demurrage charges are charges paid to steamship carriers for freight remaining in the terminal for longer periods than initially agreed upon.

Port congestion and trucking conditions are slowly improving.

In addition, we have procured additional warehouse space and expect to significantly reduce our demurrage charges.

We are still expecting to have significant inventory levels at least through the first half of fiscal 2024.

As a result, we expect our warehouse operations may be less efficient, and we expect to incur additional labor and storage costs related to our inventory.

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 cargo capacity.

We believe that our existing carriers will be able to manage demand in a more efficient manner for the balance of fiscal 2023 and, as a result, our reliance on the secondary market will be reduced.

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.

Excess Inventory in the Marketplace

Higher marketplace inventories and a rapidly changing economic environment have caused retailers to rationalize their inventory levels.

As a result, retailers have increased promotional activity to reduce their inventory.

While we have planned for a certain amount of promotional activity, additional promotional activity in excess of what we have planned for could have an adverse effect on our results of operations.

Impact of COVID-19

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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.

New information may emerge concerning the severity of the outbreak and the spread of 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.

We continue to monitor the latest developments regarding the COVID-19 pandemic and have incorporated certain assumptions regarding the duration, severity and global macroeconomic impact of the pandemic into our financial outlook.

The impact of COVID-19 on our business and operating results could differ materially from these assumptions based on a number of factors largely outside of our control.

War in Ukraine

The current war in Ukraine and the continued threat of terrorism, heightened security measures and military action in response to acts of terrorism or civil unrest has, at times, disrupted commerce and intensified concerns regarding the United States and world economies.

The current war in Ukraine and the continued threat of terrorism, heightened security measures and military action in response to acts of terrorism or civil unrest has disrupted commerce and intensified concerns regarding the United States and world economies.

Less than 1% of our revenue in fiscal 2022 was generated in Russia and Ukraine.

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, a weakening of the European economy and volatility in financial markets.

However, the imposition of additional sanctions by the United States and/or foreign governments could lead to restrictions related to sales and our supply chain for which the financial impact is uncertain.

In addition, 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, a weakening of the European economy, lower consumer demand 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 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.

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

Net sales for the three months ended October 31, 2022 increased to $1.08 billion from $1.02 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 $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.

Net sales of our wholesale operations segment increased to $1.07 billion for the three months ended October 31, 2022 from $1.01 billion in the comparable period last year.

This increase is primarily the result of inclusion of the results of KLH for the three month period which added $51.9 million in net sales to our wholesale operations segment.

Additionally, net sales of Calvin Klein licensed products increased by $8.0 million.

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

Net sales of our retail operations segment increased to $28.8 million for the three months ended October 31, 2022 from $26.2 million in the same period last year.

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

The number of retail stores operated by us increased from 56 at October 31, 2021 to 60 at October 31, 2022.

Gross profit was $344.6 million, or 32% of net sales, for the three months ended October 31, 2022, compared to $347.5 million, or 34.2% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 30.7% in the three months ended October 31, 2022 compared to 33.0% in the same period last year.

The gross profit percentage in the current year period was negatively impacted by $26.7 million in demurrage charges due to our inability to pick up freight from port terminals in a timely manner compared to an insignificant amount of demurrage charges in the same period last year.

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

The gross profit percentage in our retail operations segment was 54.9% for the three months ended October 31, 2022 compared to 49.8% for the same period last year.

The gross profit percentage in the current year period was positively impacted by a reduction in promotional activity.

Selling, general and administrative expenses increased to $239.9 million in the three months ended October 31, 2022 from $182.4 million in the same period last year.

The inclusion of the results of KLH for the three months ended October 31, 2022 represented $28.8 million of this increase.

The remainder of the increase in expenses was primarily due to an increase of $18.6 million in third-party warehouse and facility expenses primarily related to higher inventory levels and a $3.5 million increase in advertising expenses related to digital and brand promotional activities.

Depreciation and amortization was $7.3 million for the three months ended October 31, 2022 compared to $7.0 million in the same period last year.

This increase primarily results from the inclusion of the results of KLH for the three month period which increased depreciation and amortization by $1.1 million, partially offset by lower depreciation and amortization as a result of a reduction in capital expenditures in recent years.

Other loss was $2.8 million in the three months ended October 31, 2022 compared to other income of $0.9 million for the same period last year.

Other loss in the current period consisted of $4.0 million of foreign currency losses during the three months ended October 31, 2022 compared to $1.1 million during the same period last year.

In addition, we recorded $0.2 million of losses from unconsolidated affiliates during the three months ended October 31, 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 October 31, 2022 were $16.1 million compared to $12.4 million in the same period last year.

The increase was due to higher average borrowings on our revolving credit facility in

the current year period.

There were no borrowings outstanding under our revolving credit facility in the same period last year.

Income tax expense was $17.5 million for the three months ended October 31, 2022 compared to $40.2 million for the same period last year.

Our effective tax rate decreased to 22.4% in the current year’s quarter from 27.4% 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.

This decrease is primarily due to changes in the mix of tax jurisdictions where taxable income is generated during the three months ended October 31, 2022.

Nine months ended October 31, 2022 compared to nine months ended October 31, 2021

Net sales for the nine months ended October 31, 2022 increased to $2.37 billion from $2.02 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 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 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 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.

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 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.

Net sales of our wholesale operations segment increased to $2.34 billion for the nine months ended October 31, 2022 from $1.99 billion in the comparable period last year.

This increase is primarily the result of a $98.2 million increase in net sales of Calvin Klein licensed products, a $40.9 million increase in net sales of our DKNY and Donna Karan products and a $35.6 million increase in net sales of Karl Lagerfeld Paris products.

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

The increase in sales of DKNY and Donna Karan products was primarily related to dresses, sportswear and luggage.

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

Additionally, the inclusion of the results of KLH for four months in the period added $69.2 million in net sales to our wholesale operations segment.

Net sales of our retail operations segment increased to $87.8 million for the nine months ended October 31, 2022 from $72.9 million in the same period last year.

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

The number of retail stores operated by us increased from 56 at October 31, 2021 to 60 at October 31, 2022.

Gross profit was $819.6 million, or 34.5% of net sales, for the nine months ended October 31, 2022, compared to $735.9 million, or 36.5% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 33.0% in the nine months ended October 31, 2022 compared to 35.1% in the same period last year.

The gross profit percentage in the current year period was negatively impacted by $30.8 million in demurrage charges due to our inability to pick up freight from port terminals in a timely manner compared to an insignificant amount of demurrage charges in the same period last year.

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

The gross profit percentage in our retail operations segment was 52.1% for the nine months ended October 31, 2022 compared to 50.7% for the same period last year.

The gross profit percentage in the current year period was positively impacted by a reduction in promotional activity.

Selling, general and administrative expenses increased to $616.4 million in the nine months ended October 31, 2022 from $470.8 million in the same period last year.

The inclusion of the results of KLH for the nine months ended October 31, 2022 represented $39.2 million of this increase.

The remainder of the increase in expenses was primarily due to increases of (i) $26.6 million in compensation expense, primarily from increased salary expenses, (ii) $35.8 million in third-party warehouse and facility expenses and (iii) $18.1 million in advertising related to digital and brand promotional activities.

In addition, professional fees increased $4.2 million primarily due to expenses associated with the acquisition of KLH.

Depreciation and amortization was $20.0 million for the nine months ended October 31, 2022 compared to $21.2 million in the same period last year.

This decrease primarily relates to a reduction in capital expenditures in recent years partially offset by depreciation and amortization resulting from the acquisition of KLH.

Other income was $24.8 million in the nine months ended October 31, 2022 compared to $4.7 million for the same period last year.

Other income in the current period consisted of a gain of $30.9 million during the nine months ended October 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 of the remaining interests in KLH.

Other loss in the current period consisted of $9.4 million of foreign currency losses during the nine months ended October 31, 2022 compared to $1.6 million during the same period last year.

Additionally, we recorded $0.8 million in income from unconsolidated affiliates during the nine months ended October 31, 2022 compared to $2.8 million in the same period last year.

Interest and financing charges, net, for the nine months ended October 31, 2022 were $40.8 million compared to $36.9 million for the same period last year.

The increase was due to higher average borrowings on our revolving credit facility in the current year period.

We had no borrowings outstanding under our revolving credit facility in the same period last year.

Income tax expense was $39.5 million for the nine months ended October 31, 2022 compared to $59.7 million for the same period last year.

Our effective tax rate decreased to 23.6% in the current year’s period from 28.2% 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.

This decrease in the effective tax rate is primarily due to the exclusion from taxable income of the gain on the remeasurement of the fair value of our previously held 19% investment in KLH and 49% interest in KLNA.

Liquidity and Capital Resources

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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.

As of October 31, 2022, we had cash and cash equivalents of $150.7 million and availability under our revolving credit facility of approximately $290 million.

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

Senior Secured Notes

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Bank, National Association, as trustee and collateral agent (the “Collateral Agent”).

The net proceeds of the Notes have been used (i) to repay the $300 million that was outstanding under our prior term loan facility due 2022 (the “Term Loan”), (ii) to pay related fees and expenses and (iii) for general corporate purposes.

The net proceeds of the Notes were used (i) to repay the $300 million that was outstanding under our prior term loan facility due 2022 (the “Term Loan”), (ii) to pay related fees and expenses and (iii) for general corporate purposes.

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

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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.

In accordance with ASC 835, the debt issuance costs have been deferred and are presented as a contra-liability, offsetting the outstanding balance of the Notes, and are amortized over the remaining life of the Notes.

In addition, we had unamortized debt issuance costs of $6.1 million associated with the Term Loan.

Upon repayment of the Term Loan, these debt issuance costs were fully extinguished and charged to interest expense in our results of operations.

Second Amended and Restated ABL Credit Agreement

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and Donna Karan Studio LLC (the “Guarantors”), are Loan Guarantors under the ABL Credit Agreement.

The ABL Credit Agreement refinanced, amended and restated the Amended Credit Agreement, dated as of December 1, 2016 (as amended, supplemented or otherwise modified from time to time prior to August 7, 2020, the “Prior Credit Agreement”), by and among the Borrowers and the Loan Guarantors (each as defined therein) party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., in its capacity as the administrative agent thereunder.

The Prior Credit Agreement provided for borrowings of up to $650 million.

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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.

As of October 31, 2022, interest under the ABL Credit Agreement was being paid at an average rate of 4.91% 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 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.

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

As of October 31, 2022, we had $340.2 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.

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

As of October 31, 2022, there were outstanding trade and standby letters of credit amounting to $6.5 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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Reference Rate Reform

The interest rate of our revolving credit facility is indexed to LIBOR.

The interest rate under our revolving credit facility is indexed to LIBOR.

LIBOR quotations could cease as of December 31, 2022.

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Unsecured Loans

During fiscal 2020 and fiscal 2021, T.R.B International SA (“TRB”), a subsidiary of Vilebrequin, borrowed funds under several unsecured loans.

A portion of the unsecured loans was to provide funding for operations in the normal course of business, while other unsecured loans were various European state backed loans as part of COVID-19 relief programs.

Additionally, Sonia Rykiel and KLH borrowed funds under European state backed loans that were part of COVID-19 relief programs.

Several of our foreign entities borrow funds under various unsecured loans of which a portion is to provide funding for operations in the normal course of business while other loans are European state backed loans as 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 €0.4 million.

Interest on the outstanding principal amount of the unsecured loans accrues at a fixed rate equal to 0% to 5.0% per annum, payable on either a quarterly or monthly basis.

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

As of October 31, 2022, the Company had an aggregate outstanding balance of €10.7 million ($10.4 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 July 31, 2022, TRB had an aggregate €3.1 million ($3.2 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 October 31, 2022, TRB had an aggregate €3.7 million ($3.7 million) drawn under these facilities.

Foreign Credit Facility

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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.

As of October 31, 2022, KLH had €10.6 million ($10.4 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 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.

We had $340.2 million of borrowings outstanding under our revolving credit facility at October 31, 2022 and no borrowings outstanding at October 31, 2021.

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

Our contingent liability under open letters of credit was approximately $9.9 million and $17.1 million at October 31, 2022 and 2021, respectively.

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

As of October 31, 2022 and 2021, we had an aggregate of €10.7 million ($10.4 million) and €7.3 million ($8.4 million) outstanding under the Company’s various unsecured loans.

As of October 31, 2022 and 2021, we had €3.7 million ($3.7 million) and €2.5 million ($2.8 million) outstanding under Vilebrequin’s overdraft facilities.

As of October 31, 2022, we had €10.6 million ($10.4 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.

Pursuant to this program, during the nine months ended October 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.

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.

As of December 1, 2022, we had 9,188,126 authorized shares remaining under this program and 47,488,999 shares of common stock outstanding.

Cash from Operating Activities

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.

We used $415.3 million in cash from operating activities during the nine months ended October 31, 2022, primarily as a result of increases of $355.3 million in inventories, $248.3 million in accounts receivable and a non-cash gain of $30.9 million on our 19% investment in KLH and 49% investment in KLNA.

These items were offset, in part, by our net income of $128.1 million and non-cash charges consisting primarily of $28.9 million relating to share-based compensation and depreciation and amortization of $20.0 million.

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.

While inventories normally increase in the first nine months of our fiscal year, they increased more than normal due to 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 experienced by our overseas suppliers.

Accounts receivable increased because we experience higher sales levels in our third and fourth quarters.

Cash from Investing Activities

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.

We used $211.1 million of cash in investing activities during the nine months ended October 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.

In addition, we had $14.8 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 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.

Net cash provided by financing activities was $322.2 million during nine months ended October 31, 2022 primarily as a result of borrowings of $512.7 million under our ABL Credit Agreement, partially offset by repayments of $172.5 million under that Agreement.

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.

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

As of October 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