G III APPAREL GROUP LTD /DE/ Q1 FY2026 earnings call

• Delivered solid first quarter results with earnings outperformance, driven by double-digit growth of key owned brands (DKNY, Karl Lagerfeld, Donna Karan) offsetting losses from the exited Calvin Klein jeans and sportswear license business.
• In the second quarter, cooler weather initially impacted early spring, but positive sales momentum emerged as weather became seasonal.
• Addressed macroeconomic environment and tariffs, estimating potential unmitigated tariff impact for fiscal 2026 at approximately $135 million and working on strategies like sourcing diversification, vendor negotiations, selective price increases, disciplined inventory management, cost savings, and operational efficiencies.
• Sourcing: Diversified supply chain spans over 40 countries, with China to represent less than 20% of production by year-end.
• Pricing: Actively negotiating with retailers and selectively raising prices due to strong pricing power of brands.
• Inventory: Ended the quarter down 5% from last year, with tight inventory management.
• Cost savings: Realigning organization, streamlining warehouse network (exiting 4 warehouses and reducing over 150 staff), integrating international warehousing, and reducing inbound freight costs.
• Real estate: Renegotiated favorable lease terms for corporate offices and optimized global store footprint; North American Retail segment expected to breakeven, enhancing operating income by $14 million.
• Brand launches: Canceled production and postponed launch of Sonia Rykiel, wrote down costs related to materials on hand, and disbanded the dedicated team.
• Brand highlights: Donna Karan had stellar growth post-relaunch, DKNY saw double-digit sales growth, Karl Lagerfeld achieved double-digit growth with international expansion.
• Omnichannel: Improving North American retail store operations and strengthening digital ecosystem, with North American retail segment expected to breakeven.

Net sales for the first quarter ended April 30, 2025, were $584 million, down from $610 million in the same period last year. Wholesale segment net sales were $563 million compared to $598 million in the previous year. Retail segment net sales were $36 million for the quarter, up from $31 million in the previous year. Gross margin percentage was 42.2% in the first quarter of fiscal 2026, compared to 42.5% in the previous year's first quarter. The wholesale segment's gross margin percentage was 40.4% compared to 40.9% in last year's comparable quarter. The retail segment's gross margin percentage was 53.5% compared to 47% in the prior year's period. Non-GAAP SG&A expenses were $231 million compared to $237 million in the previous year's first quarter. Non-GAAP net income for the first quarter was $8.4 million or $0.19 per diluted share compared to $5.8 million or $0.12 per diluted share in the previous year's first quarter. Inventories were $456 million at the end of the quarter, decreasing 5% from the previous year's $480 million. The company ended the quarter with a net cash position of approximately $239 million, compared to $82 million in the prior year.

• Reaffirmed full fiscal year 2026 net sales guidance of approximately $3.14 billion.
• Withdrew net income, non-GAAP net income, and adjusted EBITDA guidance for fiscal 2026 due to tariff and macroeconomic uncertainties.
• Estimated unmitigated tariff impact on product imported into the U.S. at approximately $135 million, predominantly weighted to the second half of fiscal 2026.
• Expected second quarter 2026 net sales to be approximately $570 million, with gross margins generally in line and non-GAAP net income per diluted share between $1 million and $6 million.
• Anticipated low single-digit increase in the third quarter and mid-single-digit increase in the fourth quarter, inclusive of fall and holiday launches.

• Tariff impact: Potential approximately $135 million unmitigated tariff impact in fiscal 2026, with uncertainty regarding timing and extent of mitigation.
• Macroeconomic uncertainty: Global landscape remains uncertain, impacting the consumer environment.
• Supply chain disruptions: Due to tariffs and other factors, affecting production and ordering patterns.
• Brand launch uncertainties: Postponement of Sonia Rykiel launch due to operational and market uncertainties.

Q: Ashley Owens on pricing increases and assortment opportunity A: Morris Goldfarb discussed targeted pricing, leveraging strong pricing power of brands like Donna Karan and Karl Lagerfeld, and the potential for pricing in new launches like Converse Q: Ashley Owens on Sonia Rykiel postponement and second half demand planning A: Morris Goldfarb explained cancellation of Sonia Rykiel launch due to operational and market uncertainties; Neal Nackman discussed second half order book and supply management Q: Mauricio Serna on timing shift impact and tariff mitigation A: Neal Nackman on supply chain-related shift in Q2 and Morris Goldfarb on Hudson Bay impact; Neal Nackman detailed tariff mitigation strategies Q: Paul Kearney on inventory and promotions A: Neal Nackman on inventory lean and moving with sales growth; Morris Goldfarb on limited promotion pressure due to product quality and demand