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G-III Apparel Group Ltd. (NASDAQ: GIII) had a rough Wednesday. The company's stock took a hit after it reported a mixed bag of second-quarter results and served up a third-quarter outlook that left investors wanting more.
The apparel maker said sales came in slightly below its own expectations, with economic weakness in Europe putting a damper on demand. It's a familiar story for retailers these days, but G-III has its own unique challenges to grapple with.
On the earnings front, G-III delivered adjusted earnings of 26 cents per share, comfortably beating the consensus estimate of 19 cents. That's the good news.
The less good news: sales fell 10% year over year to $554.09 million, missing the $568.41 million analysts were looking for. The decline is largely a reflection of the company's ongoing exit from the Calvin Klein and Tommy Hilfiger licensing businesses.
Since PVH Corp. announced it was taking those licenses back in fiscal 2023, G-III has seen nearly $1.2 billion in revenue walk out the door. The company is working to fill that hole, and excluding Marc Jacobs, it expects its go-forward portfolio to replace about $700 million of those sales by the end of fiscal 2027.
There were some bright spots in the quarter. Gross margin expanded by a whopping 440 basis points to 45.2%, thanks to price increases, more full-price sales, and a shift toward higher-margin owned brands. The company also ended the quarter with $529 million in cash and about $1 billion in available liquidity. That cash pile includes roughly $134 million in tariff refunds and interest. Inventory was down 13% from a year earlier, and G-III returned more than $12 million to shareholders through buybacks and dividends.
G-III has been busy remaking itself as a brand-led global apparel company, and the acquisition of Marc Jacobs is a big piece of that puzzle.
Marc Jacobs is expected to generate about $360 million in global sales this year, excluding licensing revenue from the intellectual property joint venture. G-III thinks the brand could eventually hit $1 billion in annual revenue. That's a big if, but the company has plans to expand Marc Jacobs through ready-to-wear products, licensing, international growth, and broader distribution.
The acquisition is expected to be slightly dilutive in fiscal 2027, but it should become accretive after the first 12 months. G-III plans to fold Marc Jacobs into its formal outlook when it reports third-quarter results in December.
One of the standout performers this quarter was Donna Karan, with sales up more than 45%. Strong consumer demand, full-price selling, and growth across digital, handbags, and footwear all contributed to the surge.
DKNY also continued to gain traction in North America and international markets. Karl Lagerfeld and Vilebrequin delivered growth despite tough conditions in Europe. G-III is also expanding its licensed portfolio with brands like Starter, Converse, Levi's, French Connection, BCBG, and Joules.
Wholesale sales fell to $531 million from $589 million a year earlier, while retail sales dipped to $40 million from $41 million. But here's the thing: when you strip out Calvin Klein and Tommy Hilfiger, G-III's go-forward portfolio actually grew at a high-single-digit rate. Full-price wholesale sales increased more than 20%.
Wholesale gross margin improved to 43.3% from 38.9%, though retail gross margin slipped to 50.6% from 52.4% due to increased promotional activity.
During the earnings call, G-III laid out the math on its license exits. The departure of Calvin Klein and Tommy Hilfiger will eliminate about $460 million in fiscal 2027 sales. The company expects growth from its go-forward portfolio to partially offset that decline, but the transition will hit third-quarter revenue the hardest.
For the third quarter, G-III expects adjusted earnings of $1.35 to $1.45 per share, well below the $1.75 estimate. The company projected sales of about $870 million, also missing the $899.40 million analysts had penciled in.
Looking at the full fiscal year 2027, G-III raised its GAAP earnings outlook to $4.10 to $4.20 per share from $3.85 to $3.95. It also bumped its adjusted earnings forecast to $2.20 to $2.30 per share from $2.15 to $2.25. The consensus estimate sits at $2.22.
The company reaffirmed its full-year sales forecast of $2.71 billion, which is broadly in line with the $2.709 billion estimate. G-III expects gross margin to improve by about 400 basis points in fiscal 2027, supported by price increases and the shift toward higher-margin owned brands.
GIII Price Action: G-III Apparel Group shares were down 9.79% at $29.02 at the time of publication on Wednesday, according to market data.
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