The company benefited by accelerating inventory receipts ahead of the last round of tariffs implemented in September and “obtaining some great support from our vendor resources in China,” Morris Goldfarb, chairman and CEO of G-III, said conference call with Wall Street analysts. This planning also helped gross margins come in better than planned.
Tariffs and sourcing
“We’ve always emphasized and we’re real proud of our way of developing strong global resourcing and our vendor relations,” Goldfarb said. “We continue to lean on these relationships to accelerate the efficient and effective diversification of our manufacturing base. We estimate our China-based production will be approximately 50 percent by the end of this fiscal year from over 80 percent four years ago. We are also reallocating some of our experienced personnel in China to other parts of the world.”
The company continues to negotiate major support from its vendors to maintain their level of participation of price concessions, he said.
“We will also seek additional tariff mitigation from continuing our sourcing diversification, as well as selectively raising wholesale prices,” Goldfarb said, while acknowledging, “clearly we’ll be paying a little bit more for our product…We’re producing product that is a little bit more fashion than it has been historically, and I guess the good news, bad news is the best-selling product that is out in the retail world is the fashion side of what we do.”
When fashion is what’s driving success, “you are able to raise your prices,” he added.
Third-quarter tariff impacts were “somewhat negligible” because the company had inventory that was pre-tariff, “so the blend of the two worked out for us,” Goldfarb said. The fourth quarter should see more of an impact, he added, and if tariffs continue, they “will be a way of life for the future.”
And 2020 will bring an even greater impact next year “as we deplete our low-cost inventory,” Goldfarb said.
Meanwhile, the company, which saw net sales for the third quarter ended Oct. 31 increase 5.2 percent to $1.13 billion and net income rise 1.49 percent to $95.4 million, had particularly strong results from the wholesale segment, with net sales up 6.2 percent to $1.07 billion.
Calvin Klein, the largest unit, delivered net sales growth of approximately 11 percent compared to last year, with strength across major classifications.
“We’ve built an incredible business with this brand and we remain a dominant resource in the women’s apparel market,” Goldfarb told analysts. “This quarter we shipped out our first product for CK Jeans and have installed about 25 CK Jeans shops at Macy’s, including one at their flagship Herald Square store in New York City.”
G-III is working to “build a substantial lifestyle women’s CK Jeans business over the next several years, with the potential of reaching $250 million in annual sales,” Goldfarb said.
The company’s Tommy Hilfiger business also had a strong quarter, with sales up around 20 percent from the prior-year period. This spring, G-III will launch a Tommy Jeans collection focused on a younger customer. Previously part of the Tommy Hilfiger Sportswear line, the line will be housed separately in the jeans area of department stores and will now also be sold to select specialty stores.
“We continue to grow our Tommy Hilfiger business both organically and through product line extensions,” Goldfarb said. “In addition to our established and growing business at Macy’s, distribution has been expanded to Dillard’s, Nordstrom’s and a broad assortment of specialty stores. The excellent brand management and marketing investments by our partner PVH continue to keep the Calvin Klein and Tommy Hilfiger brands relevant and top of mind for the global customer, and helped fuel the growth of our business.”
The company’s DKNY and Donna Karan brands registered 20 percent sales growth in the quarter and will expand distribution of the brand for spring with several categories, launching in 100-plus doors at Dillard’s and increasing the footprint in Macy’s with additional doors.
“We are also developing a DKNY Jeans line with an urban, chic and edgy vibe to appeal to the consumers’ more casual apparel needs,” Goldfarb said. The line will have a soft launch for spring 2020, with a full launch expected for fall.
Given the year-to-date sales growth and the strength in DKNY’s order book, the company believes that DKNY and Donna Karan can achieve fiscal year wholesale net sales growth of approximately 25 percent, Goldfarb said.