G-Iii Apparel Group Ltd 2027 Q2 Earnings Call

Please go ahead. Good morning, and thank you for joining us.

Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guaranteed, and actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results of operations or the financial condition of the company to differ are discussed in the documents filed by the company with the SEC. The company undertakes no duty to update any forward-looking statements. In addition, during the call, we will refer to non-GAAP gross profit, non-GAAP net income, and non-GAAP net income per share, and adjusted EBITDA, which are all non-GAAP financial measures.

We have provided reconciliations of these non-GAAP financial measures to GAAP measures in our press release, which is also available on our website. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Thank you, Neal, and thank you everyone for joining us. We made good progress in the second quarter, with earnings exceeding our guidance, driven by solid execution, significant gross margin expansion, and disciplined expense management. We also reached an incredibly important milestone with the completion of the Marc Jacobs acquisition yesterday. We believe this is transformational for G-III and significantly enhances our portfolio of owned brands while accelerating our evolution into a brand-led global apparel powerhouse. Second quarter net sales were $554 million, slightly below our plan, driven in a large part by our European business, which was impacted by macro softness in the region. Calvin Klein and Tommy Hilfiger delivered lower results than planned as we exit these licenses. Excluding Tommy and Calvin, our go-forward portfolio grew high single digits in the quarter. The quality of our sales is also improving.

We remain focused on full price selling, disciplined inventory management, and protecting the long-term positioning of our brands. For example, wholesale sales in full price channels were up more than 20% for the go-forward portfolio in the second quarter. Gross margin was a particular highlight, expanding 440 basis points compared to last year. The improvement reflects the benefit of pricing actions, healthy full price selling, and the continued mix shift toward our higher margin owned brands. We also benefited from the cost savings initiatives we continue to implement across the business. Non-GAAP earnings per diluted share for the quarter was $0.26, ahead of guidance of $0.15 to $0.25. We are operating in a dynamic macroeconomic backdrop. The American consumer remains resilient but selective, while Europe continues to be more challenged.

Despite these pressures, consumers are responding to newness and fashion, and we are encouraged by the strong sales of our product offerings. Stepping back, we are making significant progress transforming G-III and are laying the foundation for a higher growth, higher margin business. Since PVH announced the takeback of Tommy Hilfiger and Calvin Klein licenses in fiscal 2023, we have lost nearly $1.2 billion in revenue from these businesses by the end of this year. Excluding any contribution from Marc Jacobs, we will have replaced $700 million of these sales, with our go-forward portfolio growing at a high single-digit rate annually. Importantly, we are replacing these revenues at higher margin. Marc Jacobs represents a pivotal opportunity for G-III and is directly aligned with our vision for the company. We believe strongly in the long-term opportunity for Marc Jacobs, and we are excited to work with its talented team.

LVMH has been an excellent steward of the brand. This is the second transaction where we have acquired brands from LVMH. The first brought us DKNY and Donna Karan, which have been tremendously successful for G-III and have become dominant brands in global fashion, together with generating approximately $2.7 billion in annual retail sales. We are pleased to build on the history with the acquisition of another iconic brand. Let me reiterate the three core drivers behind our strategic rationale for the transaction. First, Marc Jacobs is a truly differentiated global brand. Founded in 1984, it has built a passionate following around the world, and a deep connection with the highly engaged, fashion-conscious consumers. With its premium aspirational and fashion-forward positioning, few brands today have the same combination of fashion authority, cultural influence, and multi-generational appeal.

Marc remains the center of the brand's creative vision and has shaped the fashion conversation for decades. His runway collections are an important reflection of what makes the brand so special. Continuing to command the attention and reinforces its fashion authority, his most recent show in June is a great example of the energy and excitement Marc creates, which we see an opportunity to translate across a broader commercial offering and bring more consumers into the world of Marc Jacobs. That same creative energy extends to how the brand connects to consumers through innovative storytelling. Its new campaign, The Swap, blends fashion, entertainment, and culture through its episodic format, with the next installment debuting on September 9th. Second, we see significant opportunity to unlock the next phase of growth for the brand.

Today, the business is primarily driven by handbags, small leather goods, and accessories, which represent approximately 90% of revenues. We see considerable opportunity to build the ready-to-wear business and create a more complete expression of the Marc Jacobs lifestyle while maintaining the brand's positioning and creative integrity. This aligns perfectly with G-III's core strengths and our track record of developing and scaling apparel businesses. Marc Jacobs also has a strong global licensing business, providing another important avenue for growth and value creation. Fragrance is an established and successful category for the brand through its longstanding partnership with Coty, including the Daisy franchise. The recent relaunch of Marc Jacobs Beauty is off to a very strong start, and the brand also has established businesses in categories like eyewear and children's apparel. There is also considerable potential across channels.

Marc Jacobs generates approximately two-thirds of its revenue through direct-to-consumer, with over 100 company-operated stores and a robust digital platform. The majority of its stores are in the outlet channel and generate healthy four-wall profitability. G-III, meanwhile, brings extensive wholesale capabilities and longstanding relationships with leading retailers globally, creating an opportunity to broaden distribution thoughtfully. Internationally, we see additional room to grow through both existing operations and strong local strategic partners. Together, these opportunities across product, channel, and geography provide a significant multi-year growth runway. Third, the structure of the transaction provides G-III with multiple avenues for value creation. G-III owns 100% of the Marc Jacobs operating company, including retail, wholesale, and e-commerce, and will lead product development, sourcing, distribution, marketing, and provide global licensing services.

Together with WHP Global, we also own the Marc Jacobs intellectual property through a 50% joint venture, giving G-III a 50% partnership in the earnings generated by the licensing business. WHP will lead the global licensing strategy while G-III will provide ongoing brand marketing and licensing services to existing and new partners, helping to ensure that products and consumer experiences remain consistent with the Marc Jacobs brand globally. WHP brings significant global licensing experience with its portfolio generating over $9.5 billion in annual retail sales across more than 80 countries. We look forward to working together to expand Marc Jacobs into an additional licensed category and geographies. We also plan to invest meaningfully in the Marc Jacobs brand, from marketing and product to digital, stores, and broader consumer experience.

As both an owner and an active steward of the brand, we will bring our capabilities and resources behind both and directly operated and licensed businesses while preserving the brand's desirability and creative independence. Let me briefly touch on our balance sheet, which remains an important strength of G-III. We ended the second quarter with nearly $530 million in cash and approximately $1 billion in available liquidity. Our cash position benefited from the receipt of approximately $134 million in tariff refunds, including interest, during the second quarter. Following the close of the Marc Jacobs transaction, our balance sheet remains very healthy, with ample liquidity and financial flexibility to continue investing in our brands and strategic growth initiatives, as well as return capital to shareholders. During the second quarter, we returned more than $12 million through share repurchases and our dividend.

Inventory remains in excellent shape, down approximately 13% compared to last year, reflecting our continued disciplined approach to inventory management. Now let me walk you through some highlights from our own brands. Donna Karan remains one of our most powerful growth opportunities, with sales increasing more than 45% in the second quarter and momentum continues to build. The brand is benefiting from solid consumer demand, healthy full-price selling, and its aspirational positioning. Digital performance also remains strong, with growth across traffic, conversion, and AURs. The consumer is reacting favorably to newness in the offering. Donna Karan Weekend, which launched last November, is performing well, while the dress business was a standout in the second quarter. We are also seeing growth across lifestyle categories as the mix of the business becomes more diversified.