What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-12-06 compared with 2023-09-07 · 127 added, 112 removed, 239 unchanged (50% of the section changed)

6 unchanged sentences

Accordingly, the results of KLH, Vilebrequin, Fabco and Sonia Rykiel are included in the 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, 2023, the results of KLH, Vilebrequin, Fabco and Sonia Rykiel are included for the six-month period ended June 30, 2023.

For example, with respect to our results for the nine-month period ended October 31, 2023, the results of KLH, Vilebrequin, Fabco and Sonia Rykiel are included for the nine-month period ended September 30, 2023.

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 2024 and 2023, the three and six-month periods for the retail operations segment were each 13-week and 26-week periods, respectively, and ended on July 29, 2023 and July 30, 2022, respectively.

For fiscal 2024 and 2023, the three and nine-month periods for the retail operations segment were each 13-week and 39-week periods, respectively, and ended on October 28, 2023 and October 29, 2022, 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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● the failure to maintain our material license agreements could cause us to lose significant revenues and have a material adverse effect on our results of operations;

● u nless 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 limited extension period of the recently amended Calvin Klein and Tommy Hilfiger license agreements could cause a significant decrease in our net sales and have a material adverse effect on our results of operations;

● u nless 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 limited extension period of the amended Calvin Klein and Tommy Hilfiger license agreements could cause a significant decrease in our net sales and have a material adverse effect on our results of operations;

● any adverse change in our relationship with PVH Corp.

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● the impact of the current economic and credit environment on us, our customers, suppliers and vendors, including without limitation, the effects of inflationary cost pressures and higher interest rates;

● effects of war, acts of terrorism, natural disasters or public health crises could adversely affect our business and results of operations, including the war in Ukraine;

● effects of war, acts of terrorism, natural disasters or public health crises could adversely affect our business and results of operations, including the wars in Ukraine and the Middle East;

● the global health crisis caused by COVID-19 has had, and the current and uncertain future outlook with respect to COVID-19 and its variants will likely continue to have, adverse effects on our business, financial condition and results of operations;

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We acquired the DKNY and Donna Karan brands, two of the most iconic American fashion brands, in December 2016.

We initially repositioned and relaunched DKNY and have successfully grown the brand to approximately $600.0 million in annual net sales.

We initially repositioned and relaunched DKNY and we have successfully grown the brand.

We are now focused on the repositioning and expansion of the Donna Karan brand for Spring 2024.

The new Donna Karan will be a modern system of dressing created to appeal to a woman’s senses on every level, addressing her full lifestyle needs.

Our Donna Karan product is expected to be distributed in better department stores, digital channels and our own Donna Karan website in North America and internationally.

Donna Karan is widely considered a top fashion brand and is recognized as one of the most famous designer names in American fashion.

Our Donna Karan product is expected to be distributed in North America and internationally through our diversified distribution network, including better department stores, digital channels and our own Donna Karan website.

Donna Karan is widely considered to be a top fashion brand and is recognized as one of the most famous designer names in American fashion.

We believe that the strength of the Donna Karan brand, along with our success with the DKNY brand, demonstrates the potential for our new Donna Karan products.

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First deliveries are expected to begin in January 2024.

The product is expected to be distributed in better department stores, digital channels and Nautica’s stores and website in North America, as well as in franchised stores globally.

The product is expected to be distributed in North America through our diversified distribution network, including better department stores, digital channels and Nautica’s stores and website, as well as in franchised stores globally.

We believe that significant opportunity exists in the better women’s apparel space in categories where we have strong expertise.

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First deliveries of Halston product are expected to begin in the fall of 2024.

Our Halston product is expected to be distributed globally through better department stores and digital channels.

Our Halston product is expected to be distributed globally through our diversified distribution network, including better department stores and digital channels.

We believe that significant opportunity exists in the better women’s apparel space where G-III has significant expertise.

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First deliveries of Champion product are expected for the Fall 2024 season.

Our Champion product is expected to be distributed through better department stores and digital channels in North America.

Our Champion product is expected to be distributed in North America through our diversified distribution network, including better department stores and digital channels.

Our collections will feature quality heritage pieces that complement and enhance Champion’s principles.

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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 Karl Lagerfeld and Vilebrequin businesses, including from retail stores operated by Vilebrequin and Karl Lagerfeld, other than sales of product under the Karl Lagerfeld Paris brand from our retail stores and digital outlets.

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

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Significant trends that affect the apparel industry include retail chains closing unprofitable stores, an increased focus by retail chains and others on expanding digital sales and providing convenience-driven fulfillment options, the continued consolidation of retail chains and the desire on the part of retailers to consolidate vendors supplying them.

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.

In addition, 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 both our web sites and third party web sites and through social media.

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Retailers are seeking to differentiate their offerings by devoting more resources to the development of exclusive products, whether by focusing on their own private label products or on products produced exclusively for a retailer by a national brand manufacturer.

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.

Exclusive brands are only made available to a specific retailer.

As a result, customers loyal to their brands can only find them in the stores of that retailer.

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 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, such as our recent license agreements for the Nautica, Halston and Champion brands, 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 purchase of the interests not previously owned by us that resulted in Karl Lagerfeld becoming our wholly-owned subsidiary, and new license agreements entered into by us, such as our recent license agreements for the Nautica, Halston and Champion brands, 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.

Tax Laws and Regulations

On December 12, 2022, the Council of the European Union (“EU”) announced that EU member states reached an agreement to implement the minimum tax component of the Organization for Economic Co-operation and Development’s international tax reform initiative, known as Pillar Two.

The Pillar Two Model Rules provide for a global minimum tax of 15% for multinational enterprise groups, and is expected to be effective for our fiscal year ending January 31, 2025.

We are in the process of evaluating the impact of Pillar Two, if any, on our tax rate and financial results.

We will continue to monitor the developing laws as further information becomes available.

Inflation and Interest Rates

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

The Federal Reserve raised interest rates multiple times in fiscal 2023, as well as thus far in fiscal 2024, in response to concerns about inflation and may continue to do so in the remainder of fiscal 2024.

The Federal Reserve raised interest rates multiple times in fiscal 2023, as well as thus far in fiscal 2024, in response to concerns about inflation and may continue to do so in the future.

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

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As a result of supply chain disruptions, in fiscal 2023, we 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 were higher than in the comparable period of prior years.

As a result, our inventory levels were higher than usual in fiscal 2023.

Elevated inventory levels and disruptions in the shipping industry contributed to us incurring significant demurrage charges in fiscal 2023.

We believe we have taken sufficient measures to ensure that we do not again incur these charges in our current fiscal year, including reducing product buys to account for current inventory levels, adjusting our production schedules and contracting with vendors to provide storage options domestically and overseas, if needed.

We implemented measures to ensure that we did not incur these charges in our current fiscal year, including reducing product buys to account for current inventory levels and adjusting our production schedules to receive inventory closer to the need for delivery.

We experienced inventory levels that were higher than normal through the first half of fiscal 2024.

As a result, our warehouse operations were less efficient and we continued to incur additional labor and storage costs related to our inventory in the first half of fiscal 2024.

In the third and fourth quarters of fiscal 2024, we expect our inventory levels to return to more normalized levels and our warehouse capacity to be sufficient for our needs which is expected to bring these costs in line with historical norms.

We have secured new contracts with two of our long-term steamship carrier partners and are finalizing a third in an effort to mitigate our risk should rates increase.

We are presently seeking to secure space needed for peak shipping periods through existing contracts and to leverage favorable spot market rates from secondary market providers.

Our inventory levels returned to a more normalized level in the third quarter of fiscal 2024 and we expect this to continue into the fourth quarter of fiscal 2024.

Our warehouse capacity has been, and we expect it to continue to be, sufficient for our needs which is expected to bring these costs in line with historical norms.

As a result, our warehousing and distribution costs have been reduced for the third quarter of fiscal 2024 and we expect reduced costs to continue through the fourth quarter of fiscal 2024.

We have secured all required space with two of our long-term steamship carrier partners, including the space needed for our peak period and beyond.

We continue to monitor supply chain challenges, most recently the developing situation with the Panama Canal, and will divert or adjust routes accordingly to ensure delivery of our product.

Impact of COVID-19

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

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 disrupted commerce and intensified concerns regarding the United States and world economies.

Less than 1% of our revenue in fiscal 2023 was generated in Russia and Ukraine.

International Conflicts

We are monitoring the direct and indirect impacts from the military conflicts between Russia and Ukraine and Israel and Hamas.

These international conflicts and the continued threat of terrorism, heightened security measures and military action in response to acts of terrorism or civil unrest have disrupted commerce and intensified concerns regarding the United States and world economies.

Our sales in Russia, Ukraine and Israel are not material to our financial results.

However, the imposition of additional sanctions by the United States and/or foreign governments, as well as the sanctions already in place, 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.

In addition, the continuation or escalation of these international conflicts, including the potential for additional countries to declare war against each other, may lead to further, broader unfavorable macroeconomic conditions, including unfavorable foreign exchange rates, increases in fuel prices, food shortages, a weakening of the worldwide economy, lower consumer demand and volatility in financial markets.

The possible effects of these international conflicts could have a material adverse effect on our business and our results of operations.

Results of Operations

Three months ended July 31, 2023 compared to three months ended July 31, 2022

Net sales for the three months ended July 31, 2023 increased to $659.8 million from $605.2 million in the same period last year.

Three months ended October 31, 2023 compared to three months ended October 31, 2022

Net sales for the three months ended October 31, 2023 decreased to $1.07 billion from $1.08 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 $639.2 million for the three months ended July 31, 2023 from $588.0 million in the comparable period last year.

We recognized an additional $37.7 million of net sales as a result of the inclusion of the results of KLH for all of the current period compared to one month in the same period last year.

Additionally, the increase in net sales of our wholesale operations segment was also the result of a $10.9 million increase in net sales of our Levi’s outerwear products.

Net sales of our retail operations segment increased to $34.3 million for the three months ended July 31, 2023 from $31.1 million in the same period last year.

The number of retail stores operated by us was 59 at both July 31, 2023 and 2022.

The increase in sales in our retail operations segment was primarily the result of increased sales of our Karl Lagerfeld Paris products associated with our conversion of DKNY stores to Karl Lagerfeld Paris stores.

Gross profit was $276.7 million, or 41.9% of net sales, for the three months ended July 31, 2023, compared to $228.9 million, or 37.8% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 40.6% in the three months ended July 31, 2023 compared to 36.2% in the same period last year.

The addition of the results of KLH for all of the current period compared to one month in the same period last year resulted in an increase of approximately 1.5% in the gross profit percentage of our wholesale operations segment as this business operates with a higher gross profit percentage than our other businesses in the wholesale operations segment.

The gross profit percentage in the current year period was also positively impacted by slightly higher prices to our customers and lower freight costs compared to the same period last year.

The gross profit percentage in our retail operations segment was 50.5% for the three months ended July 31, 2023 compared to 51.6% for the same period last year.

Selling, general and administrative expenses increased to $239.2 million in the three months ended July 31, 2023 from $191.0 million in the same period last year.

We recognized an additional $28.7 million of expenses due to the inclusion of the results of KLH for all of the current period ended July 31, 2023 as compared to one month in the same period last year.

The remainder of the increase in expenses was primarily due to an increase of $12.2 million in compensation expense,

primarily from increased salary and bonus expense accruals, and $4.6 million in third-party warehouse and facility expenses primarily related to higher inventory levels during the period.

Depreciation and amortization was $6.0 million for the three months ended July 31, 2023 compared to $6.7 million in the same period last year.

This decrease primarily results from lower depreciation and amortization as a result of a reduction in capital expenditures in recent years, partially offset by an increase of $0.8 million of depreciation and amortization expense due to the inclusion of the results of KLH for all of the current period compared to one month in the same period last year.

Other income was $0.2 million in the three months ended July 31, 2023 compared to other income of $30.3 million for the same period last year.

Other income in the prior period resulted from 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 by us of the interests in KLH that we did not previously own.

Other income in the current period consisted of $0.7 million of foreign currency income during the three months ended July 31, 2023 compared to $2.0 million of foreign currency losses during the same period last year.

Interest and financing charges, net, for the three months ended July 31, 2023 were $9.5 million compared to $12.6 million in the same period last year.

The decrease in interest and financing charges was primarily due to a $1.8 million increase in investment income from having a larger cash position in the current year compared to the prior year and recording lower interest of $0.9 million related to the LVMH Note as we repaid $75 million of the principal amount of this Note on June 1, 2023.

Income tax expense was $6.0 million for the three months ended July 31, 2023 compared to $13.0 million for the same period last year.

Net sales of our wholesale operations segment decreased to $1.05 billion for the three months ended October 31, 2023 from $1.07 billion in the comparable period last year.

This decrease was primarily the result of a decrease in net sales of Calvin Klein and Tommy Hilfiger licensed products.

This decrease was partially offset by an increase in net sales of our DKNY and Karl Lagerfeld products.

The increase in sales of DKNY products was primarily related to handbags and women’s outerwear.

Net sales of our retail operations segment increased to $32.7 million for the three months ended October 31, 2023 from $28.8 million in the same period last year.

The number of retail stores operated by us increased from 60 at October 31,

2022 to 62 at October 31, 2023.

The increase in sales in our retail operations segment was primarily the result of increased sales at our Karl Lagerfeld Paris stores.

Gross profit was $433.4 million, or 40.6% of net sales, for the three months ended October 31, 2023, compared to $344.6 million, or 32.0% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 39.6% in the three months ended October 31, 2023 compared to 30.7% in the same period last year.

The gross profit percentage in the prior year period was negatively impacted by $26.7 million in demurrage charges incurred due to our inability to pick up freight from port terminals in a timely manner.

The gross profit percentage in the current year period was positively impacted by lower freight costs compared to the same period last year.

The gross profit percentage in our retail operations segment was 49.1% for the three months ended October 31, 2023 compared to 54.9% for the same period last year.

The gross profit percentage in the current year period was negatively impacted by an increase in promotional activity.

Selling, general and administrative expenses decreased to $236.3 million in the three months ended October 31, 2023 from $239.9 million in the same period last year.

The decrease in expenses was primarily due to a decrease of $9.0 million in third-party warehouse and facility expenses primarily related to lower inventory levels during the period.

This decrease was partially offset by an increase of $5.1 million in compensation expense, primarily as a result of increases in salaries.

Depreciation and amortization was $6.6 million for the three months ended October 31, 2023 compared to $7.3 million in the same period last year.

This decrease primarily results from lower depreciation and amortization as a result of a reduction in capital expenditures in recent years.

Other loss was $3.1 million in the three months ended October 31, 2023 compared to $2.8 million in the same period last year.

We recorded $2.7 million in losses from unconsolidated affiliates during the three months ended October 31, 2023 compared to $0.2 million in losses from unconsolidated affiliates in the same period last year.

Other loss in the current period also consisted of $0.4 million of foreign currency losses compared to $4.0 million of foreign currency losses during the same period last year.

Interest and financing charges, net, for the three months ended October 31, 2023 were $11.0 million compared to $16.1 million in the same period last year.

The decrease in interest and financing charges was primarily due to a decrease of $2.5 million in interest charges as a result of lower average borrowings under our revolving credit facility in the current year period and a decrease of $1.1 million in interest charges related to the LVMH Note as a result of the repayment of $75 million in principal of this Note on June 1, 2023.

Income tax expense was $48.8 million for the three months ended October 31, 2023 compared to $17.5 million for the same period last year.

Our effective tax rate increased to 27.7% in the current year’s quarter from 22.4% in last year’s comparable quarter.

Six months ended July 31, 2023 compared to six months ended July 31, 2022

Net sales for the six months ended July 31, 2023 decreased to $1.27 billion from $1.29 billion in the same period last year.

The lower effective tax rate in the prior year period was due the exclusion of the gain recognized as a result of the remeasurement of the fair value of our previously held 19% investment in KLH and 49% interest in KLNA from taxable income.

Nine months ended October 31, 2023 compared to nine months ended October 31, 2022

Net sales for the nine months ended October 31, 2023 decreased to $2.33 billion from $2.37 billion in the same period last year.

Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment decreased to $1.23 billion for the six months ended July 31, 2023 from $1.27 billion in the comparable period last year.

This decrease was primarily the result of a decrease in net sales of Calvin Klein and Tommy Hilfiger licensed products and in net sales of our DKNY and Donna Karan products due to a moderation in consumer demand.

This decrease was partially offset by the addition of $98.6 million in net sales due to the inclusion of the results of the Karl Lagerfeld business for all of the current period compared to one month in the same period last year.

Net sales of our retail operations segment increased to $64.6 million for the six months ended July 31, 2023 from $59.0 million in the same period last year.

The number of retail stores operated by us was 59 at both July 31, 2023 and 2022.

Gross profit was $526.5 million, or 41.6% of net sales, for the six months ended July 31, 2023, compared to $475.0 million, or 36.7% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 40.3% in the six months ended July 31, 2023 compared to 35.1% in the same period last year.

The addition of the results of KLH for all of the current period compared to one month in the same period last year resulted in an increase of approximately 1.8% in the gross profit percentage of our wholesale operations segment as this business operates with a higher gross profit percentage than our other businesses in the wholesale operations segment.

The gross profit percentage in the current year period was also positively impacted by slightly higher prices to our customers and lower freight costs compared to the same period last year.

The gross profit percentage in our retail operations segment was 50.7% for the six months ended July 31, 2023 compared to 50.8% for the same period last year.

Selling, general and administrative expenses increased to $467.2 million in the six months ended July 31, 2023 from $376.5 million in the same period last year.

We recognized an additional $64.8 million of expenses due to the inclusion of the results of KLH for all of the current period ended July 31, 2023 as compared to one month in the same period last year.

The remainder of the increase in expenses was primarily due to an increase of $15.6 million in compensation expense, primarily from increased salary and bonus expense accruals, and an increase of $10.6 million in third-party warehouse and facility expenses primarily related to higher inventory levels.

Net sales of our wholesale operations segment decreased to $2.28 billion for the nine months ended October 31, 2023 from $2.34 billion in the comparable period last year.

This decrease was primarily the result of a decrease in net sales of Calvin Klein and Tommy Hilfiger licensed products.

This decrease was partially offset by the addition of $110.2 million in net sales due to the inclusion of the results of the acquired Karl Lagerfeld business for all of the current period compared to only four months in the same period last year.

Net sales of our retail operations segment increased to $97.3 million for the nine months ended October 31, 2023 from $87.8 million in the same period last year.

The number of retail stores operated by us increased from 60 at October 31, 2022 to 62 at October 31, 2023.

The increase in sales in our retail operations segment was primarily the result of increased sales at our Karl Lagerfeld Paris stores.

Gross profit was $959.9 million, or 41.1% of net sales, for the nine months ended October 31, 2023, compared to $819.6 million, or 34.5% of net sales, in the same period last year.

The gross profit percentage in our wholesale operations segment was 40.0% in the nine months ended October 31, 2023 compared to 33.0% in the same period last year.

The gross profit percentage in the prior year period was negatively impacted by $30.8 million in demurrage charges incurred due to our inability to pick up freight from port terminals in a timely manner.

The gross profit percentage in the current year period was positively impacted by lower freight costs and slightly higher prices to our customers compared to the same period last year.

The gross profit percentage in our retail operations segment was 50.2% for the nine months ended October 31, 2023 compared to 52.1% for the same period last year.

The gross profit percentage in the current year period was negatively impacted by an increase in promotional activity.

Selling, general and administrative expenses increased to $703.5 million in the nine months ended October 31, 2023 from $616.4 million in the same period last year.

We recognized an additional $72.8 million of expenses due to the inclusion of the results of KLH for the current period ended October 31, 2023 as compared to only four months in the same period last year.

The remainder of the increase in expenses was primarily due to an increase of $16.7 million in compensation expense, primarily from an increase in salaries and bonus expense accruals.

This increase was partially offset by reduced royalty advertising expenses which decreased due to lower net sales of licensed product.

Depreciation and amortization was $12.5 million for the six months ended July 31, 2023 compared to $12.8 million in the same period last year.

This decrease primarily results from lower depreciation and amortization as a result of a reduction in capital expenditures in recent years, partially offset by an increase of $2.1 million of depreciation and amortization expense due to the inclusion of the results of KLH for all of the current period compared to one month in the same period last year.

Other income was $1.2 million in the six months ended July 31, 2023 compared to other income of $27.6 million for the same period last year.

Other income in the prior period resulted from 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% investment in KLNA as of the effective date of the acquisition by us of the interests in KLH that we did not previously own.

Other income in the current period consisted of $1.1 million of foreign currency income during the six months ended July 31, 2023 compared to $5.4 million of foreign currency losses during the same period last year.

Interest and financing charges, net, for the six months ended July 31, 2023 were $21.6 million compared to $24.8 million in the same period last year.

The decrease in interest and financing charges was primarily due to a $2.6 million increase in investment income from having a larger cash position in the current year compared to the prior year and recording lower interest of $0.8 million related to the LVMH Note as we repaid $75 million of the principal amount of this Note on June 1, 2023.

Income tax expense was $6.9 million for the six months ended July 31, 2023 compared to $22.0 million for the same period last year.

Our effective tax rate increased to 26.2% in the current year’s period from 24.8% in last year’s comparable period due to a $1.3 million tax benefit related to the foreign tax credit that was recorded during the first quarter of the prior year.

Depreciation and amortization was $19.1 million for the nine months ended October 31, 2023 compared to $20.0 million in the same period last year.

This decrease primarily results from lower depreciation and amortization as a result of a reduction in capital expenditures in recent years, partially offset by an increase of $2.4 million of depreciation and amortization expense due to the inclusion of the results of KLH for all of the current period compared to four months in the same period last year.

Other loss was $2.0 million in the nine months ended October 31, 2023 compared to other income of $24.8 million for the same period last year.

Other income in the prior year 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% investment in KLNA as of the effective date of the acquisition by us of the interests in KLH that we did not previously own.

Other loss in the current period consisted of $0.7 million of foreign currency income during the nine months ended October 31, 2023 compared to $9.4 million of foreign currency losses during the same period last year.

Additionally, we recorded $3.7 million in losses from unconsolidated affiliates during the nine months ended October 31, 2023 compared to $0.8 million in income from unconsolidated affiliates in the same period last year.

Interest and financing charges, net, for the nine months ended October 31, 2023 were $32.7 million compared to $40.8 million in the same period last year.

The decrease in interest and financing charges was primarily due to a $3.0 million increase in investment income from having a larger cash position in the current year compared to the prior year and a decrease of $2.2 million in interest charges due to lower average borrowings under our revolving credit facility in the current year period.

In addition, there was a decrease of $1.6 million in interest charges related to the LVMH Note as a result of the repayment of $75 million in principal of this Note on June 1, 2023.

Income tax expense was $55.7 million for the nine months ended October 31, 2023 compared to $39.5 million for the same period last year.

Our effective tax rate increased to 27.5% in the current year’s period from 23.6% in last year’s comparable period.

The lower effective tax rate in the prior year period was due to the exclusion of the gain recognized as a result of the remeasurement of the fair value of our previously held 19% investment in KLH and 49% interest in KLNA from taxable income.

Liquidity and Capital Resources

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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.

A principal payment of $75 million was made on June 1, 2023 with respect to the LVMH Note with the remaining principal amount of $50 million due and payable on December 1, 2023.

A principal payment of $75 million was made on June 1, 2023 with respect to the LVMH Note.

The remaining principal amount of $50 million under the LVMH Note was paid on December 1, 2023.

We have also used cash to repurchase our shares.

As of July 31, 2023, we had cash and cash equivalents of $197.7 million and availability under our revolving credit facility of approximately $640 million.

As of July 31, 2023, we were in compliance with all covenants under our senior secured notes and revolving credit facility.

As of October 31, 2023, we had cash and cash equivalents of $197.4 million and availability under our revolving credit facility of approximately $645 million.

As of October 31, 2023, we were in compliance with all covenants under our senior secured notes and revolving credit facility.

Senior Secured Notes

In August 2020, we completed a private debt offering of $400 million aggregate principal amount of our 7.875% Senior Secured Notes due 2025 (the “Notes).

In August 2020, we completed a private debt offering of $400 million aggregate principal amount of our 7.875% Senior Secured Notes due August 2025 (the “Notes).

The terms of the Notes are governed by an indenture, dated as of August 7, 2020 (the “Indenture”), among us, the guarantors party thereto and U.S.

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The Intercreditor Agreement restricts the actions permitted to be taken by the Collateral Agent with respect to the Collateral on behalf of the holders of the Notes.

The Notes are also subject to the terms of the LVMH Note subordination agreement which governs the relative rights of the secured parties in respect of the LVMH Note, the ABL Facility and the Notes.

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.

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and The Donna Karan Company Store LLC (collectively, the “Borrowers”), entered into the second amended and restated credit agreement (the “ABL Credit Agreement”) with the Lenders named therein and with JPMorgan Chase Bank, N.A., as Administrative Agent.

The ABL Credit Agreement is a five year senior secured credit facility subject to a springing maturity date if, subject to certain conditions, the LVMH Note is not refinanced or repaid prior to the date that is 91 days prior to the date of any relevant payment thereunder.

The ABL Credit Agreement provides for borrowings in the aggregate principal amount of up to $650 million.

The ABL Credit Agreement is a five year senior secured credit facility that provides for borrowings in the aggregate principal amount of up to $650 million.

We and certain of our subsidiaries (the “Guarantors”), are Loan Guarantors under the ABL Credit Agreement.

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

The ABL Credit Agreement extended the maturity date of this facility from December 2021 to August 2025, subject to a springing maturity date if, subject to certain conditions, the LVMH Note is not refinanced or repaid prior to the date that is 91 days prior to the date of any relevant payment thereunder.

The ABL Credit Agreement extended the maturity date of this facility from December 2021 to August 2025.

Amounts available under the ABL Credit Agreement are subject to borrowing base formulas and overadvances as specified in the ABL Credit Agreement.

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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.

As of July 31, 2023, we were in compliance with these covenants.

As of July 31, 2023, we had no borrowings outstanding under the ABL Credit Agreement.

As of October 31, 2023, we were in compliance with these covenants.

As of October 31, 2023, we had no borrowings outstanding under the ABL Credit Agreement.

The ABL Credit Agreement also includes amounts available for letters of credit.

As of July 31, 2023, there were outstanding trade and standby letters of credit amounting to $3.7 million and $2.9 million, respectively.

As of October 31, 2023, there were outstanding trade and standby letters of credit amounting to $2.0 million and $2.9 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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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 was repaid on June 1, 2023 and $50 million of such principal amount is due and payable on December 1, 2023.

The LVMH Note is classified in current portion of notes payable in our Company’s condensed consolidated balance sheet as of July 31, 2023 and January 31, 2023.

$75.0 million of the LVMH Note is classified in current portion of notes payable in our condensed consolidated balance sheet as of July 31, 2022.

$75 million of the principal amount of the LVMH Note was repaid on June 1, 2023 and the remaining $50 million of such principal amount was paid on December 1, 2023.

The LVMH Note is classified in current portion of notes payable in our Company’s condensed consolidated balance sheet as of October 31, 2023 and January 31, 2023.

$75.0 million of the LVMH Note is classified in current portion of notes payable in our condensed consolidated balance sheet as of October 31, 2022.

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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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, 2023, the Company had an aggregate outstanding balance of €9.1 million ($9.9 million) under these unsecured loans.

As of October 31, 2023, the Company had an aggregate outstanding balance of €8.6 million ($9.1 million) under these unsecured loans.

Overdraft Facilities

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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, 2023, TRB had an aggregate of €2.0 million ($2.2 million) drawn under these facilities.

As of October 31, 2023, TRB had an aggregate of €1.8 million ($1.9 million) drawn under these facilities.

Foreign Credit Facility

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Borrowings bear interest at the EURIBOR plus a margin of 1.7%.

As of July 31, 2023, KLH had €7.5 million ($8.2 million) of borrowings outstanding under this credit facility.

As of October 31, 2023, KLH had €3.9 million ($4.2 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, 2023 and $51.6 million outstanding at July 31, 2022, respectively.

We had $400 million in borrowings outstanding under the Notes at July 31, 2023 and July 31, 2022, respectively.

Our contingent liability under open letters of credit was approximately $6.7 million and $11.3 million at July 31, 2023 and 2022, respectively.

In addition to the amounts outstanding under these two loan agreements, at July 31, 2023 and 2022, we had $50 million and $125 million of face value principal amount outstanding under the LVMH Note, respectively.

As of July 31, 2023 and 2022, we had an aggregate of €9.1 million ($9.9 million) and €7.6 million ($8.0 million) outstanding under the Company’s various unsecured loans.

As of July 31, 2023 and 2022, we had €2.0 million ($2.2 million) and €3.1 million ($3.2 million) outstanding under our various overdraft facilities.

As of July 31, 2023 and 2022, we had €7.5 million ($8.2 million) and €0.4 million ($0.4 million) outstanding under KLH’s foreign credit facility.

We had no borrowings outstanding under our revolving credit facility at October 31, 2023 and $340.2 million outstanding at October 31, 2022, respectively.

We had $400 million in borrowings outstanding under the Notes at October 31, 2023 and October 31, 2022, respectively.

Our contingent liability under open letters of credit was approximately $4.9 million and $9.9 million at October 31, 2023 and 2022, respectively.

In addition to the amounts outstanding under these two loan agreements, at October 31, 2023 and 2022, we had $50 million and $125 million of face value principal amount outstanding under the LVMH Note, respectively.

As of October 31, 2023 and 2022, we had an aggregate of €8.6 million ($9.1 million) and €10.7 million ($10.4 million) outstanding under the Company’s various unsecured loans.

As of October 31, 2023 and 2022, we had €1.8 million ($1.9 million) and €3.7 million ($3.7 million) outstanding under our various overdraft facilities.

As of October 31, 2023 and 2022, we had €3.9 million ($4.2 million) and €10.6 million ($10.4 million) outstanding under KLH’s foreign credit facility.

Share Repurchase Program

In August 2023, 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.

Prior to this increase, we had 6,813,851 authorized shares under

this program.

Pursuant to this program, during the six months ended July 31, 2023, we acquired 1,598,568 of our shares of common stock for an aggregate purchase price of $26.1 million.

Prior to this increase, we had 6,813,851 authorized shares under this program.

Pursuant to this program, during the nine months ended October 31, 2023, we acquired 1,598,568 of our shares of common stock for an aggregate purchase price of $26.1 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 5, 2023, we had 45,721,002 shares of common stock outstanding.

As of October 31, 2023, we had remaining 10,000,000 shares authorized for purchase under this program.

As of December 4, 2023, we had 45,727,662 shares of common stock outstanding.

Cash from Operating Activities

We generated $212.5 million in cash from operating activities during the six months ended July 31, 2023, primarily as a result of our net income of $19.7 million, a decrease of $155.6 million in accounts receivable and an increase of $154.4 million in accounts payable and accrued expenses.

We generated $226.3 million in cash from operating activities during the nine months ended October 31, 2023, primarily as a result of our net income of $147.3 million, a decrease of $117.8 million in inventories and increases of $47.1 million in accounts payable and accrued expenses and $18.2 million in customer refund liabilities.

We also generated cash from operating activities as a result of non-cash charges relating primarily to depreciation and amortization of $19.1 million and share-based compensation of $11.7 million.

These items were offset, in part, by an increase of $95.5 million in inventories and a decrease of $33.5 million in customer refund liabilities.

The changes in operating cash flow items are consistent with our seasonal pattern of building up inventory for the fall shipping season resulting in the increases in inventory and accounts payable.

Our 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.

These items were offset, in part, by an increase of $188.3 million in accounts receivable.

The changes in operating cash flow items are consistent with our seasonal pattern with the exception of the decrease in inventory which resulted from our inventory returning to a more normalized level after experiencing a period of elevated inventory levels in fiscal 2023 due to supply chain disruptions.

Our accounts receivable and customer refund liabilities increased because we experience higher sales levels in our third and fourth quarters.

Cash from Investing Activities

We used $14.8 million of cash in investing activities during the six months ended July 31, 2023.

We used $19.3 million of cash in investing activities during the nine months ended October 31, 2023.

We had $15.7 million in capital expenditures primarily related to infrastructure and information technology expenditures and additional fixturing costs at department stores.

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Cash from Financing Activities

Net cash used by financing activities was $194.3 million during six months ended July 31, 2023 primarily as a result of repayments of borrowings of $85.4 million under our ABL Credit Agreement, partially offset by borrowings of $5.3 million under that Agreement, as well as the $75.0 million principal repayment of the LVMH Note.

Net cash used by financing activities was $199.1 million during nine months ended October 31, 2023 primarily as a result of repayments of borrowings of $112.8 million under our ABL Credit Agreement, partially offset by borrowings of $32.7 million under that Agreement, as well as the $75.0 million principal repayment of the LVMH Note.

In addition, we used $26.1 million of cash to repurchase 1,598,568 shares of our common stock under our share repurchase program and $10.8 million for taxes paid in connection with net share settlements of stock grants that vested.

Critical Accounting Policies

Our discussion of results of operations and financial condition relies on our consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty.

subject to varying degrees of uncertainty.

We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein.

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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, 2023 are those that depend most heavily on these judgments and estimates.

As of July 31, 2023, there have been no material changes to our critical accounting policies.

As of October 31, 2023, 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