Investment Research Presentation

Transcription

1 Investment Research Presentation G-III Apparel Month Senior Day, Analyst: 20XXJustin Bartenbach Junior Analysts: Emil Kilman, Dora Xu, Michael Lazar, Ricardo Giron, Justin Reinhardt 1

2 Investment Recommendation Industry Overview Why G-III? Valuation Drivers Risk Factors Intrinsic & Comparable Valuation 2

3 G-III Investment Recommendation G-III Apparel Group Ltd. designs, manufactures & markets apparel, including outerwear, dresses, sportswear, swimwear, women's suits & women's performance wear, as well as footwear, luggage & women handbags, small leather goods & cold weather accessories. BUY with the ability to become a STRONG BUY in near future Recent problems with climate à trouble with outerwear sales Introduction of DK into business model More diversification More retail/wholesale market share BUY Target Price: $27.30 Current Trading Price: $23.13 (18% upside) Valuation Drivers: Diversified Distribution Base DK Acquisition & Expansion Surge in e- Commerce Source: Google Finance, G-III Annual Report 3

4 Industry Overview Apparel and Accessories Manufacturing Companies in this industry are primarily engaged in the manufacturing of men's, women's and children's apparel. The industry includes manufacturers that purchase fabrics and those that manufacture fabrics themselves and have fixed operational facilities. All companies listed participate in both retail and wholesale. Target Company: Competitors: G-III Apparel NASDAQ: GIII 1.18 B Market Cap. VF Corporation NYSE: VFC B Market Cap. PVH NYSE: PVH 7.71 B Market Cap. Genesco NYSE: GCO M Market Cap. Source: Ibis World, Google Finance 4

5 Why G-III? Strong Brand-name Recognition Wholesale Licensed - 17 fashion brands - 9 team sport brands Retail Owned Loyalties 11 brands 5 brands Source: G-III Annual Report 5 brands 402 stores in the U.S. 5

6 Why G-III? Diversified Distribution Base G-III leverages a diversified distribution base with multiple channels of distribution Macy s, TJX Companies, Nordstrom, Saks Fifth Avenue, etc. Multiple price points and consumer demographic segments From off-price retailers to luxury department stores Mass / Club Online Media / Television Off-Price Source: G-III Annual Report, Google Finance Mid-tier Department Stores Aspirational / Luxury 6

7 Valuation Driver: Diversified Growth Strategy Through M&A One of the most difficult risks to overcome in retail industry is seasonality In order to position themselves as an allseason apparel company, G-III focuses on acquiring a varied portfolio of brand names to cover all seasons FY2016 Sales: August 2012 November 2013 Recent acquisitions: Acquisition of Vilebrequin Status swim & resort wear Wholesale & retail Acquisition of G.H. Bass Footwear, apparel and accessories Sportwear & Other 26% Dresses 21% Retail 26% Outerwear 27% June 2015 Joint venture with Karl Lagerfeld 49% ownership in brand rights First licensee in joint venture women s apparel, handbags, men s outerwear Most recent and influential acquisition: DK from LVMH in December 2016 February 2016 Expanded relationship with Tommy Hilfiger license Women s sportswear, suits, and denim products In addition to variety of current Tommy Hilfiger products Source: G-III Annual Report 7

8 Valuation Driver: Expansion of DKNY/DKI Sales Revenue (millions of USD) Operating Income (millions of USD) DKNY Projected Revenues ($ in millions) $ $ $ $ $ DKNY Projected Operating Income ($ in millions) Source: G-III Annual Report, WSJ, Google Finance In December of 2016, G-III acquired Donna Karan from LVMH for $650 million (combination of cash and debt) As of March 27th, Macy s signed an exclusive agreement with G-III to become the exclusive department store retailer of DKNY women s apparel, handbags, and shoes. DK alone has the ability to be a billion dollar brand Addition of DK enables expansion of wholesale category Adds scale, diversification, and growth Strengthens online retail channels (Donna Karan & DKNY websites) 45 new retail stores G-III projects strong revenues for Donna Karan in the coming years. In terms of operating income, G-III expects dilution of earnings for the first year due to the brands integration into the current business model; positive results after. Segments of revenue Wholesale 53% Retail 35% Loyalties 12% DK will be pivotal in the expansion of G-III s business strategy. We see the company adding longterm value to G-III 8

9 Valuation Driver: Surge in US Retail e-commerce As the transition from Brick and Mortar stores to online presence increases, retailers are focusing greatly on their e- Commerce presence. By utilizing e-commerce, consumers can browse clothing options even faster, without having to leave their homes G-III is able to benefit from both the e- Commerce presence of their retail stores, but also from the stores of partners including Nordstrom, Macy s etc. Due to G-III s diversified distribution base, many of their brands receive recognition online through the traffic of their popular distributors (Nordstrom, Neiman Marcus, etc.) Acquisition of Donna Karan adds even more e-commerce exposure to G-III s list through DK and DKNY websites Number of Shoppers (millions) US Digital Shoppers and Buyers, Digital Shoppers Digital Buyers While digital shopping does not always directly lead to purchase, retail execs. claim that it does translate into an influence throughout the path to purchasing the clothes Showrooming - Bought digitally after browsing in store - 72% made purchase Webrooming - bought in store after browsing digitally - 78% made purchase Sources: IBISWorld, emarketing, Yieldify 9

10 Risk Factors Dependent on strategies and reputation of licensors G-III s success is tied to the success of the licensors A loss of large recognized licensors could adversely affect the company s growth and potential profitability G-III got a downgrade following the deal with DKNY due to its decline in sales since 2000 Legal and political restrictions International trade agreements that provide for higher tariffs can increase the cost of textile and therefore limit the amount that can be imported for production SEC disclosure obligations relating to use of conflict minerals such as culombite-tantalite, cassiterite, and wolframite Arrangement with foreign manufacturers could be limited due to trade restrictions The cyclical nature of the apparel industry Consumer behavior and changing fashion trends could lead to decrease in sales Unseasonably warm weather in the first part of the fourth quarter and retail industry challenges drove a $20 million decline in sales Clothing lines related to seasons creates uncertainty Sources: G-III Annual Report, Market Watch 10

11 Comparable Companies Valuation Company EV Market Cap Revenue EBITDA Net Income P/E P/E/G EV/EBITDA EV/Revenue GIII Apparel 1, , , x 0.9x 7.2x 0.7x VF Corp 23, , , , , x 1.8x 12.2x 2.0x PVH Corp. 10, , , , x 1.4x 10.0x 1.3x Genesco Inc. 1, , , x 1.2x 5.2x 0.4x High 19.2x 1.8x 12.2x 2.0x Mean 14.7x 1.5x 9.1x 1.2x Median 13.7x 1.4x 10.0x 1.3x Low 11.3x 1.2x 5.2x 0.4x 11

12 DCF Valuation & Weightings Key Assumptions: Cost of Debt = 2.4% Cost of Equity = 11.95% WACC = 9.41% Terminal Growth rate = 1.5% 12

13 Investment Recommendation Valuation Drivers: DK Acquisition & Expansion Diversified Distribution Base Surge in e- Commerce BUY Target Price: $27.30 Current Trading Price: $23.13 (18% upside) BUY with the ability to become a STRONG BUY in near future Recent problems with climate à trouble with outerwear sales Unseasonably warm in Q4 Introduction of DK into business model More diversification More retail/wholesale market share Risk = higher costs due to implementation? 13

14 THANK YOU 14

15 BACK-UP SLIDES 15

16 Valuation 16

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19 Statement of Cash Flows 19