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Power Brands Propel G-III in Q3, as Wholesale Leads the Way

Strong wholesale results outweighed a difficult retail performance at G-III Apparel Group, which raised its guidance for the year.

In a Nutshell: Led by its “power brands”–DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld Paris–G-III Apparel Group scored sales and income gains in the third quarter. Neal S. Hackman, chief financial officer, said on a conference call that “strong momentum in wholesale was responsible for all of the growth in the quarter,” which set a sales volume record for a third quarter.

Retail, however, “missed plan for the quarter,” as the core Wilson’s and Bass stores both posted negative comparable store sales. The company has trimmed its store count in those units to 245 units now from 350 a year earlier. Hackman said this is “not satisfactory,” and the company is “reviewing all options” in those operations.

On the positive retail side, DKNY outlet stores saw double-digit gains in the period and Karl Lagerfeld Paris stores had strong gains.

In wholesale, licensed Calvin Klein sportswear, outerwear and dresses saw strong demand, Hackman said, and Tommy Hilfiger had 50 percent sales growth, with strength in the licensed sportswear, outerwear and dress collections. The Hilfiger business is approaching $400 million in annual sales, he said.

The licensed Karl Lagerfeld Paris business also saw “healthy gains,” he said, with traffic to its website 80 percent higher than the same period last year. In the company-owned DKNY and Donna Karan brands, there was 40 percent year-over-year growth, led by outerwear, sportswear, dresses and footwear, while the joint venture in China now has 50 points of sales.

Starting this Spring, the DKNY and Donna Karan brands will be offered to all better department stores in North America. Among the positives, Hackman said, “Outerwear was an important driver in third quarter business, with great sales across the board.”

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Turning to trade and sourcing matters, Hackman said, “Our business is effected by the tariff environment,” notably in handbags and leather outerwear. “We have longstanding relations with vendors” in many countries “and have begun to strategically diversify our product sourcing” to limit the risks of future tariffs on Chinese goods. The company expects “minimal impact on financial results.”

Sales: Net sales for the third quarter ended Oct. 31 increased 4.7 percent to $1.07 billion from $1.02 billion in the year-ago period. G-III, which also owns the owns the Vilebrequin, G.H. Bass, Andrew Marc, Marc New York, Eliza J and Jessica Howard brands, raised its guidance for the full fiscal year ending Jan. 31. It now expects net sales of approximately $3.08 billion from the previous forecast of $3.06 million. Net income is now projected at $132 million and $137 million compared to the prior projection of $125 million to $130 million. This compares to net sales of $2.81 billion and net income of $62.1 million for fiscal 2018.

Earnings: Net income for the third quarter rose 15.2 percent to $94 million compared to net sales of $81.6 million in the prior-year period.

The company, which holds fashion licenses under the Kenneth Cole, Cole Haan, Guess, Vince Camuto, Levi’s and Dockers brands, is projecting full-year adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for fiscal 2019 between $262 million and $269 million compared to its previous forecast of adjusted EBITDA between $250 million and $260 million. This compares to full-year adjusted EBITDA of $201.3 million in fiscal 2018.

CEO’s Take: Morris Goldfarb, chairman and CEO, said, “In our largest shipping quarter, the continued momentum in our wholesale business enabled us to surpass our third quarter earnings guidance. We again demonstrated great ability to successfully leverage our five global power brands. Our products are set-up well across our channels of distribution for the important holiday season and we believe we will have a strong finish to the year.”