Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- G-III Apparel Group Ltd (GIII, Financial) exceeded bottom-line guidance for the second quarter and raised its full-year earnings outlook.
- The company has a diverse portfolio of over 30 globally recognized brands, including new licenses with Converse, Inc., Halston, Nautica, Champion Outwear, and BCBG.
- Net sales for the quarter were $645 million, in line with expectations, and gross margin rate expanded by 90 basis points.
- The company reported a significant decrease in inventory levels, down approximately 24% from the previous year's second quarter.
- G-III Apparel Group Ltd (GIII) has no debt and a strong financial position, with increased investments in AWWG and a solid credit profile.
Negative Points
- Net sales decreased slightly from $660 million in the same period last year to $645 million.
- The company is transitioning out of significant licenses with Calvin Klein and Tommy Hilfiger, which may impact future sales.
- SG&A expenses are expected to increase significantly in the third quarter due to marketing and warehouse expenses.
- The European market faced challenges, particularly for the Vilebrequin brand, due to a soft consumer environment and cooler weather conditions.
- Freight costs are expected to rise in the third quarter, and there are small delays in inventory receipts.
Q & A Highlights
Q: Can you further elaborate on the opportunity you see for the Converse license and how should we think about future license additions from here versus the current brands?
A: Converse is a significant opportunity for us, fitting well within our existing talent and capabilities. Partnering with Nike, we have global distribution rights, which is rare. We have already approved factories and are ready to start production. This partnership allows us to expand our active lifestyle business and leverage our existing fashion talent.
Q: Inventories for the quarter remain incredibly clean. Can you talk about the composition of that for owned versus licensed and how should we think about inventories through the back half?
A: Our inventories are in great shape, with better aging than historically. We don't see any imbalance between licensed and non-licensed inventories. For Q3 and Q4, we expect inventories to be slightly up, aligned with future sales growth.
Q: There's a step up expected in Q4. Can you speak more about what's driving the confidence?
A: We are comfortable with Q4 due to the weakest quarter comparison from the previous year and the continued rollout of new initiatives and strong growth from our own brands. The success of Donna Karan and other brands is driving this confidence.
Q: How do we think about SG&A spend into the second half of the year and the heavy investment cycle for own brands and marketing campaigns?
A: SG&A will significantly increase in Q3 due to advertising and warehouse expenses. The $60 million incremental SG&A spend is mostly second-half based. The investment in marketing, especially for Donna Karan, will continue until the brand scales up.
Q: Can you give us an idea of the expected size of the Donna Karan business for this year?
A: Donna Karan has had the best launch in our company's history. We conservatively estimate a $1 billion sales potential globally, not including licensing opportunities. The brand is performing exceptionally well and has strong potential for global expansion.
Q: How should we think about the EPS guidance update?
A: The EPS guidance update includes the Q2 beat, interest savings, and the impact of share repurchases. We purchased about 1.1 million shares back in Q2, and our interest savings are up by about $3 million compared to the previous forecast.
Q: How to dimensionalize the Converse rollout over time in terms of distribution and retail partners?
A: We believe Converse can reach $200 million in sales in a reasonable time. The distribution will be global, including department stores, sporting goods shops, and distributors. We are well-positioned to grow this business.
Q: How do you think about the distribution expansion for licensed brands and the standout opportunities for the rest of 2024 and into 2025?
A: We have several assets, including Pepe and Hackett, which we plan to distribute in North America. We are also developing private label initiatives for unique retailers. Our capabilities in producing various classifications, including footwear and accessories, position us well for future growth.
Q: What are you seeing in terms of freight costs and supply chain lead times?
A: Most of our freight is under contract, but we expect higher freight costs in Q3 and possibly into Q4. Lead times have seen a small delay, but it's not significant. We have built these factors into our guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
