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G-III CEO: Pandemic and Protests Present ‘Opportunities’ Amid the Chaos

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After announcing plans to close all 199 Wilson’s Leather and G.H. Bass stores, G-III Apparel Group anticipate further closures in brick-and-mortar retail, but it plans to expand its Donna Karan and Karl Lagerfeld chains.

At the same time, the company said its online sales have the potential to reach 40 percent of total product volume and it will look to make “significant investments” in its own online business, chairman and CEO Morris Goldfarb told analysts on a conference to discuss first-quarter results.

In the first quarter ended April 30, G-III saw net sales fall 36.1 percent to $405.1 million. The company reported a net loss for the quarter of $39.3 million, or 82 cents per share, compared to net income of $12 million, or 24 cents per diluted share, in the prior year’s comparable period.

On the product side, Goldfarb said, “Business in the denim areas is exceptionally good,” while performance, activewear and leisurewear have been strong.

Store reset

Goldfarb noted that after completing the retail restructuring, the company retail sector will initially consist of 41 DKNY and 13 Karl Lagerfeld Paris stores that have also not performed at the highest levels.

“We believe we are well positioned to ultimately retain and increase their business, weather through their brick-and-mortar stores or their online sites,” he said. “We plan on returning these brick-and-mortar businesses to profitability.”

In addition, G-III’s e-commerce sites, which he said are “small and profitable,” will include DKNY, Donna Karan, Karl Lagerfeld Paris, Andrew Marc, Wilsons Leather and G.H. Bass. He noted that those brands also do a significant amount of business through retail partner online sites.

Denim etc

On the product side, Goldfarb said the company’s core basics are going to be more important than fashion for the rest of the year, given the consumer mindset.

“Whether it be fleece or a denim or some technical fabrics that are common to many vendors, we’re finding opportunity buys that we believe we can take advantage of to enhance margin and create a suitable third and fourth quarter business,” he said. “Our business in the denim area is exceptionally good. One of the early dedications to future inventory that we just worked on was buying a significant amount of denim for third and fourth quarter. We launched extremely well with CK, Tommy and we had a softer launch with the DKNY that was not intended to be a big business this year. But if anything, our denim business is better than we had anticipated.”

Goldfarb said the company had ended the prior fiscal year with a sizeable and growing wholesale business. The Calvin Klein brand approached annual sales of $1.1 billion, Tommy Hilfiger was at nearly $500 million, DKNY and Donna Karan brands were over $450 million in annual sales and Karl Lagerfeld was at just over $110 million.

State of inventory

That’s not to say there aren’t significant challenges ahead. Goldfarb said while inventory positions for strong performing areas like denim, active and leisure are clean, categories like prom and social occasion dresses, career suits, day dresses are another story. “We’re going to put a ribbon around…not sell it off,” he said, “just bring it back into next year–the product is great, it’s first-class product, it’s not problem product.”

“So we’re OK on the inventory side of it,” he said. “We have a great vendor base that has accommodated, holding some piece goods into next year, if needed…We have orders to ship and we’ll generate more receivables and there’s been a little bit of a delay in payments on very well balanced retailers that there are no credit issues with.

“When a retailer takes their magic wand and says, ‘everything is cancelled,’ it hurts for a minute,” Goldfarb said. However, since then “we got a huge percentage of our orders reinstated, we’re almost on a normal process and the orders that we got reinstated were not at discounted rates. We didn’t permit that to happen. We have alliances with our retailers that go back many years. And in most cases, we’re either the first-, second- or third-largest vendor to those retailers, so there’s a respect. There’s a need which goes both ways to make the accommodations and we’re fine on the margin side. The dilution is not what one would expect during this crisis period, I’m happy to see. I was concerned, obviously, going in, but we’re OK.”

State of retail

He said G-III is exposed to risk at Lord & Taylor and has been hurt slightly with J.C. Penney and Neiman’s bankruptcies, “but nothing astronomical.” Goldfarb noted that Macy’s is G-III’s largest customer and there’s talk of their door count decreasing. However, he said if that happens, “it will be their doors that generally don’t affect us to any degree.”

“So, we see Dillard’s maintaining their business,” he said. “We see Kohl’s becoming a better retailer…And needless to say, there is a Walmart business to address, and we’ve sighted some opportunities through all of this that we’ve never realized we had and we’re pursuing those.”

Prior to the protests and more specifically, prior to the lootings, business was tracking at about 30 percent to 35 percent off throughout the department store and off-price sectors, he noted, but were in the early stages of coming back.

Now these stores have lost possibly about 20 percent of their door count, with some more temporarily than others due to damage and loss of inventory, he noted. Overall, traffic in stores that are open seems to be down by about 25 percent.

Goldfarb said it seems as if the shopper that’s out there “truly is a shopper and not just walking through the stores–they’re armed with money and they’re eager to buy.”

“A strong collaborative vendor base will afford us the ability to make opportunistic purchases for the back half of this year,” he said. “These actions, combined with our solid balance sheet, strengthened our financial flexibility and liquidity. We are well positioned to weather the current challenges and to demonstrate our leadership position in the fashion industry as we emerge from this crisis.”

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