Why G-III Apparel Group Ltd. Lost 33% Last Year

By Jeremy Bowman Markets Fool.com

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Image source: G-III.

What happened

Shares ofG-III Apparel Group(NASDAQ: GIII) were coming undone last year, falling 33% according to data from S&P Global Market Intelligence. The stock slid as the company posted a series of downbeat earnings results, missing earnings estimates in three of its last four quarters and twice by wide margins. You can see the path shares took below.

Data by YCharts.

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So what

G-III stock kicked off the year with some solid gains, outperforming the broad market as it signed a licensing agreement with PVH Corp. and took a 19% stake in the parent of Karl Lagerfeld.

However, the stock was clobbered after the company released its fourth quarter earnings report in March, falling 19% and far short of analyst estimates. Net sales increased just 3% to $527.4 million, and earnings per share fell from $0.48 in the prior year period to $0.17, missing estimates at $0.42. Management blamed weak outerwear sales due in part to mild weather for the miss. The company also said it expected earnings per share of $2.55 to $2.65 for fiscal 2017.

Shares had recovered some of those losses over the subsequent months but then plummeted as analysts were bearish on its $650 million acquisition, including debt, of the Donna Karan brand in July. Again, the stock lost more than 20% over just two days. G-III got at least two downgrades following the deal as Donna Karan has lost half its sales since 2000 and is currently operating at a loss. G-III said it would be dilutive to earnings in fiscal 2017 but accretive thereafter.

In late August, the stock plunged on second quarter earnings, shedding about 25% as G-III badly missed earnings estimates again. Net sales fell 7%, and the company posted a per-share profit of a penny, down from a $0.27 the year before. Analysts had expected earnings of $0.18 per share. The stock fluttered near $30 for the duration of the year and recovered modestly after the third quarter earnings report met expectations.

Now what

With analysts projecting a per-share profit of just $1.44 for the current fiscal year, little more than half of what the company had initially guided to, it is easy to see why the stock fell so much in 2016.

Unfortunately, problems have continued into 2017 as the stock is off 6% year-to-date. Management said early this month that the fourth quarter would be weaker than predicted due to unseasonably warm weather. Apparel chains across the board have struggled with the rise of fast-fashion purveyors like H&M and growth of the e-commerce channel, and G-III, with its old-fashioned branding and licensing playbook, seems no different.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.