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Tickers in this Article: GIII
G-III Apparel Group (GIII) recently delivered the coveted triple play:
  • A positive EPS surprise,
  • A positive sales surprise, and
  • Increased management guidance.
Analysts have been aggressively raising their estimates for G-III, sending the stock to a Zacks Rank #1 (Strong Buy).G-III manufactures and distributes an extensive range of apparel primarily under licensed brands such as Calvin Klein, Kenneth Cole, Cole Haan, Guess?, Tommy Hilfiger, Jones New York, Jessica Simpson, Sean John, Nine West, Levi's and Dockers brands.G-III also has licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League and more than 100 U.S. colleges and universities. The company also operates retail stores primarily under the Wilsons Leather and G.H. Bass names.It reports its results in 3 segments:Licensed (69% of gross sales year-to-date)
Non-Licensed (20%)
Retail (11%)Third Quarter ResultsG-III reported better-than-expected for the third quarter of its fiscal 2014 on December 4. Adjusted earnings per share came in at $2.88, beating the Zacks Consensus Estimate of $2.61 by 10%. It was a 19% increase over the same quarter last year.Net sales jumped 23% year-over-year to $668.7 million, well ahead of the consensus of $621.0 million. This was driven in large part by a 25% increase in net sales in the 'Licensed' segment.Gross profit as a percentage of sales declined 100 basis points year-over-year to 34.0%. But this was mostly offset by SG&A (selling, general and administrative expenses) leverage. The operating margin declined just 10 basis points while operating income rose 22%.Estimates RisingFollowing strong Q3 results, management raised its guidance for the remainder of fiscal 2014. The company now expects adjusted EPS between $3.50 and $3.60, which was well above consensus at the time.This prompted analysts to revise their estimates significantly higher, sending the stock to a Zacks Rank #1 (Strong Buy).The 2014 Zacks Consensus Estimate is now $3.59, which is within guidance. It corresponds to 23% annual EPS growth. The 2015 consensus is currently $4.24, up from $4.02 just 30 days ago.Reasonable ValuationShares of GIII are up more than +25% since the Q3 beat, but valuation still looks reasonable. The stock trades around 17x next year's earnings. And based on consensus long-term EPS growth expectations of 16.5%, it's PEG ratio is right around 1.0.It was also announced on December 23 that G-III will be joining the S&P SmallCap 600 index after the close of trading on December 31. This creates even more demand for shares of GIII since funds that track this index will now have to buy its stock.The Bottom LineWith solid earnings momentum, strong growth prospects and reasonable valuation, G-III Apparel offers investors a lot to like.Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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