G-III Apparel Group Ltd. (G-III Apparel (GIII)), the company behind DKNY and Donna Karan, saw its stock jump on Friday after reporting first-quarter results that beat Wall Street's expectations and raising its outlook for the year. The shares surged nearly 7%, helped along by a high short interest—over 21% of the float—which can amplify moves when a stock surprises to the upside.

As of the latest data, about 6.14 million shares of G-III are sold short, representing 21.64% of the publicly traded float. That's a pretty high level of bearish bets, so when the company delivered better-than-expected numbers, the shorts likely scrambled to cover, adding fuel to the rally.

First-Quarter Results: Better Than Feared

For the quarter ended April 30, G-III reported an adjusted loss of $0.21 per share, narrower than the $0.30 loss analysts had expected. Revenue came in at $535.96 million, ahead of the consensus estimate of $529.92 million. Sales were down 8% from a year ago, but that decline was largely by design: the company is winding down its Calvin Klein and Tommy Hilfiger businesses, which used to generate about $470 million in annual revenue. Excluding that planned exit, the underlying business is holding up well.

Gross margin was a bright spot. Adjusted gross margin expanded by 350 basis points year over year to 45.7%. The company credited higher full-price selling, a bigger mix of its higher-margin owned brands, disciplined inventory management, and actions taken to offset tariff-related costs.

CEO: Consumers Are Selective, Not Retreating

Chairman and CEO Morris Goldfarb said the company remains in a strong financial position, ending the quarter with $394 million in cash and inventory down 8% from a year ago. He acknowledged that geopolitical tensions in the Middle East and broader economic uncertainty are weighing on consumer sentiment, but noted that G-III still managed to beat its own expectations and gain market share.

“Consumer demand for apparel has remained resilient despite higher fuel costs and ongoing global uncertainty,” Goldfarb said. He added that shoppers are becoming more selective, but overall spending trends remain healthy, particularly in North America, where sell-through rates haven't raised any red flags. Europe, however, is showing more cautious behavior. Goldfarb also noted that G-III has limited exposure to the Middle East, so conflicts there haven't materially affected the business.

Owned Brands and Digital Are on Fire

G-III's strategy of focusing on its own brands is paying off. Donna Karan revenue jumped about 40%, supported by roughly 60% growth in digital sales. DKNY delivered double-digit direct-to-consumer growth and more than 40% growth in e-commerce. Karl Lagerfeld also expanded in North America and saw improving digital performance.

Overall, direct-to-consumer revenue increased about 40% year over year, and wholesale digital sales also exceeded expectations. The company highlighted its planned acquisition of Marc Jacobs in partnership with WHP Global as a key strategic move. G-III expects to invest about $500 million in the deal, funded through cash and credit facilities, and management estimates the brand could eventually generate around $1 billion in annual revenue.

Outlook Raised, Margins Improving

Following the strong quarter, G-III raised its fiscal 2027 adjusted earnings guidance to a range of $2.15 to $2.25 per share, up from the prior forecast of $2.00 to $2.10. That's above the analyst consensus of $2.08. The company kept its revenue forecast at approximately $2.71 billion, which is in line with Wall Street's $2.711 billion. The roughly 8% year-over-decline in revenue is mostly due to the loss of the PVH licenses, but the go-forward business is expected to grow at a high-single-digit rate as the company shifts toward higher-margin owned brands.

G-III now expects gross margin expansion of about 400 basis points for the full year, up from its previous forecast of about 300 basis points. For the second quarter, the company projected adjusted earnings of $0.15 to $0.25 per share, compared with analysts' expectations of $0.18. Revenue is expected to be about $570 million, above the consensus estimate of $555.23 million.

At the time of publication on Friday, G-III shares were up 6.79% at $34.21, trading near their 52-week high of $34.83.