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G-III Apparel Pops, Short-Covering Is To Blame
G-III Apparel Pops, Short-Covering Is To Blame
Shares of G-III Apparel (NASDAQ: GIII) popped in the wake of the Q4 earnings report and will likely move higher over the long term. In the near term, however, there is a shadow hanging over the market that will likely cap gains if not drive them back to retest support. That shadow is short-selling, the stock’s short-interest was above 9.0% ahead of the earnings release so it is safe to say a fair among of the post-release action is due to short covering. The problem for us is not in the short-covering, but in the fact gains were capped at the $30 level and the candle signals we are getting are not promising. This is a problem we’ve seen throughout the market and one that could keep GII Apparel and the broader market moving sideways for the next few months.
GIII Apparel Has A Record-Setting Quarter
GIII Apparel had a great quarter and appears to be on track to grow to above pre-pandemic levels in fiscal 2023. The company reported $748.15 million in net revenue for a gain of 42.2% over last year and beat the consensus by 100 basis points but came shy of the pre-pandemic level by less than 100 basis points. The revenue strength was aided by margin expansion and share repurchases that led earnings to a record per-share level. On the bottom line, the $0.9 in GAAP earnings is more than 200% above last year’s levels due to leverage and merchandise margins and beat by $0.33 with strength expected to continue in Q1 and FY23.
Turning to the guidance, the company is guiding both Q1 and FY23 above the Marketbeat.com consensus. The company is expecting to see Q1 revenue in the range of $600 million compared to $553 million and FY revenue near $3 billion versus $2.89 billion. As for earnings, the full-year guidance is expecting $4.20 to $4.30 in GAAP earnings compared to the consensus of $3.63 and there is upside risk in the margin outlook assuming supply chain issues ease in the 2nd half as they are forecast to do.
GIII Apparel Ramps Up Share Repurchases
GIII Apparel has been repurchasing shares over the last few quarters and bought back shares during the 4th quarter as well. There were about 250,000 shares left under the last authorization and that was beefed up by a new authorization that brings the total to 10 million shares. This is worth about 20% of the shares outstanding and will be a powerful tailwind for price action over the next year. Add to this a positive bias among the institutions and there is a recipe for upward price action. The institutions own about 89% of the company including the 4% purchased over the last 4 quarters.
The analysts rate the stock a Hold leaning toward Buy and we see a potential catalyst in the trend. The analysts have been very quiet about this stock over the last year with only one notable commentary and it was issued a day or so before the earnings release. Telsey Advisory Group maintained an Overweight rating but lowered the price target to $30 from $38. That target implies the stock is fairly valued at current levels but may move higher now the results confirm the business is strong.
The Technical Outlook: G-III Confirms The Top Of A Range
Price action in GIII Apparel popped more than 11% in the wake of the earnings release and moved above the $30 level but that’s where the good news ends. The market capped gains at $30 and drove price action below this level creating a Shooting Star Doji. If this pattern holds into the close of trading it will signal the top of a range that may remain in place until the Q1 earnings report confirms the outlook given in the Q4 report.
