G-III Apparel Group Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 5, 2023

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the G III Apparel Group Third Quarter Fiscal 20 24 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to turn the conference over to Neil Nachman, Chief Financial Officer.

Operator

Please go ahead.

Speaker 1

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 and A session may constitute forward looking statements within the meaning of the federal securities laws. Forward looking statements are not guarantees and actual results may differ materially from those expressed or implied in 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.

Speaker 1

In addition, during the call, We will refer to non GAAP net income, non GAAP net income per diluted 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.

Speaker 2

Thank you, Neil, and thank you everyone for joining us. We recorded strong profitability in the 3rd quarter, well exceeding our bottom line guidance. Our strong year to date results showcase G III's ability to successfully navigate challenging market conditions. Over the years, we have a proven track record of evolving to drive our business and to meet the needs of customers Before I review our Q3 results, I want to take a moment to recognize all that we have done over the last 12 months since we announced The staggered license terminations of the Calvin Klein and Tommy Hilfiger brands. We noted that this change will allow us We moved quickly to develop 4 new initiatives and have made significant progress with our existing business.

Speaker 2

Our new initiatives include the repositioning and expansion of Donna Karan, which will launch this spring in over 200 doors. We will build 150 branded shop in shops and develop new licenses to extend the brand's new positioning and reach. Our long term license for Nautica and North America, beginning with jeans And expanding to a broad range of additional categories is set to launch early next year in over 200 doors. We will quickly install 60 branded shop in shops. A master global license With the option to purchase Halston is expected to launch in the fall of 2024 with new positioning across a broad range of categories.

Speaker 2

We will also be a licensor of the brand creating another income stream for us and a multi year license to produce outerwear for Champion that fits seamlessly into our already well developed outerwear operations We've been able to secure these new initiatives rapidly as we're a vendor of choice for retailers with a strong balance sheet. Importantly, these plans are already underway and will result in new sales starting this spring because of the Incredible job capturing the DNA of each of these brands and authentically translating that into full collection By category in such a short period of time, the product looks great. Additionally, Jeff Goldfarb and his teams Have successfully enabled us to quickly identify and develop new opportunities to expand our reach and impact. He secured a number of deals for the business, developed our global distribution partner network and significantly grown our digital business. All this work demonstrates our ability to deliver to our shareholders, our partners and our associates.

Speaker 2

I'm confident that we're moving in the right direction. As we continue to focus on new opportunities to evolve our business model, I'm pleased to announce that we've hired Dana Pearlman as Chief Growth and Operations Officer. In this newly created role, she will bring her impressive experience to drive innovation, optimize operations and help identify new opportunities for G III. I'm confident that Dana's 20 year career With a strong track record of success in our industry, it will help us execute our go forward plans. The team and I look forward to working with her when she joins us in January.

Speaker 2

Now turning to the results of the Q3 of fiscal 2024. Non GAAP net income per diluted share was $2.78 compared to $1.35 per diluted share last year, well exceeding our guidance by $0.70 at the midpoint. Our outperformance was a result of several factors, including gross margins, which were meaningfully better than last year, exceeding our internal expectations. We moved through our inventory more profitably than planned and benefited from further moderation in freight costs. We also lapped the bulk of last year's one time logistics cost.

Speaker 2

As we work through our inventory, we were able to obtain warehousing efficiencies faster than we expected. Our warehousing is now well aligned with our current and planned inventory levels. Importantly, We were able to avoid expected deleverage in SG and A, which as a percentage of sales is now comparable to last year's Q3. As a result, we delivered strong operating margins of 18% in the quarter as compared to 9% in the Q3 of last year. Net sales were $1,070,000,000 compared to the $1,080,000,000 last year $1,080,000,000 last year.

Speaker 2

While the retail environment has been challenging Across the board with its consumers facing inflation as well as unseasonable warm weather, We feel good about our decision to focus on profitable sales. We did not need to chase additional promotional sales as we The combinations of these factors resulted in missing our top line guidance, yet we well exceeded our bottom line guidance. We ended the Q3 in a significantly better inventory position with Total inventory is down 34 percent to $592,000,000 compared to $900,000,000 last year. With pressures on supply chains having eased, we're placing inventory buys closer to need. This combined with our lower inventory levels are enabling us to turn inventory more efficiently and chase favorable sales trends.

Speaker 2

Looking ahead, this will enable us to realize additional warehouse cost efficiencies. We ended the quarter in a strong financial position with $840,000,000 in cash and availability. This is after we utilized the $100,000,000 to pay down $75,000,000 of debt and $26,000,000 to repurchase shares. We have 10,000,000 shares available in our buyback program. Now I'll provide an update on our strategic priorities.

Speaker 2

Our first priority is to drive our power brands across categories. Our performance this quarter continues to be led by outerwear, sportswear, dresses and suit separates across our key brands, DKNY, Karl Lagerfeld, Galvin Klein, Tommy Hilfiger as well as Levi's. We also saw a nice pickup in handbags and team sports. We are a significant global supplier With a diversified distribution network across stores and digital channels from luxury and better department stores, Specialty stores and the off price channel. We continue to be able to make quick transitions where necessary and manage inventory to deliver the right product at the right time to maximize profits along with sales.

Speaker 2

As we continue planning our transition with Calvin Klein and Tommy Hilfiger, our new Nordica and Halston brands along with newly Reposition Donna Karan will join DKNY and Karl Lagerfeld as power brands. We're comfortable that they will replace the top line and our bottom line as key growth drivers of our portfolio. They each bring a distinct point of view to our portfolio for a wide range of consumers with tailored distribution strategies and dedicated design teams. We continue to seize opportunities to expand these business and bring in additional brands that fit our long term strategic vision. Shifting to our next priority, growing our own brands.

Speaker 2

Our own brands represented $1,300,000,000 in annual revenue last year and they are on track to reach $1,500,000,000 this year. We believe we can grow these brands to over $3,000,000,000 in annual revenue over time and continue to direct more resources to this area. They are the most profitable businesses in our portfolio as we do not pay royalty fees and they provide highly accretive licensing income For the Q3, our own brands DKNY, Karl Lagerfeld, Donna Karan and Vilebrequin Registered another period of solid double digit year over year growth as collections are resonating with customers. We're on track to earn $75,000,000 in royalty income this year, which is highly accretive revenue stream. We will have 4 new fragrances with our partner, Inter Parfums.

Speaker 2

Karl Lagerfeld, DKNY and Donna Karan will launch new scents next year. This past August, we introduced the brand extension for DKNY's Be Delicious, which has performed exceptionally well. Additionally, DKNY expanded into new license categories, including men's underwear and loungewear, rugs and tech accessories and we re signed our South Korean territory license. Our marketing efforts this past quarter for DKNY highlighted the brand's inherent connection with New York City across multimedia campaigns. We acquired the total Karl Lagerfeld brand over a year now and are extremely pleased with its performance, which has been accretive from the beginning.

Speaker 2

The fall campaign focuses on a new Icon And last month, we launched a new holiday campaign featuring Carl's beloved Further, we brought the world of Karl Lagerfeld to life during European Fashion Weeks through some high impact global activities in Paris, Milan, Dubai and Bangkok. These events resulted in over 200 social stories and 90,000,000 impressions. Extending our global reach is an important priority. This year our key international brands have registered solid sales growth. Karl Lagerfeld is expanding into new lifestyle categories with jeans, which targets a younger consumer and is a natural fit for the brand.

Speaker 2

The collection embodies Carl's confident self awareness and the independent spirit of street art for both men and And

Speaker 3

we are now in the process

Speaker 4

of ready to wear, accessories and footwear.

Speaker 2

We just opened our 1st Karl Lagerfeld jeans store in Madrid and it's off to a good start. To support the launch and engage with younger consumers, we took over nightclubs in Paris, Berlin and in Madrid. We now have 6 unique Karl Lagerfeld branded lifestyle projects with more in the works. In addition to 2 hotels, one of which opened this year. We have agreements for 4 residential properties in Dubai, Lisbon and 2 in Spain.

Speaker 2

Vilebrequin further expanded its reach with franchise partners having opened 2 new stores in prominent beach vacation destination. One at the Atlantis Hotel in the Bahamas and the other in Costa Navarino, Greece. The brand now has a total of 104 company operated stores and 88 franchisee operated stores. Further, Vilebrequin has 3 lifestyle projects, a beach club in Cannes, which opened this summer and is becoming major to a multi year licensing agreement with a developer of a luxury lifestyle hotel in Florida. Expected to open in spring 2024, Vilebrequin has designed the approximately 15,000 square feet These beach clubs demonstrate the brand's power and the versatility to adapt our lifestyle concept to owned, Franchise or licensed opportunities for clubs, restaurants and even hotels in the future.

Speaker 2

For both of these brands, hospitality has become a new opportunity for us. These initiatives provide additional income, Drive significant global awareness and enhance the status appeal of the brands. We've also laid a strong foundation for DKNY's International expansion with new partner stores. Thus far, 5 have opened this year and we Expect to open 7 more by the end of next year. In September, DKNY introduced the 1st European design collection, which will launch in September 2024.

Speaker 2

The collection will feature a range of iconic streetwear and sports inspired women's pieces. We hosted an exclusive press preview during Milan Fashion Week and garnered rave reviews, delivering over 18,000,000 global press and social impressions. This line will launch in key European cities with Digital and omni channel growth remains an important priority. We've continued to invest in our capabilities, including an increased focus and rapid expansion with the pure play channel, which has helped offset the moderation in traditional digital channels now that customers are returning to stores. This work has paid off with those sales increasing by 30% this year.

Speaker 2

Our Amazon business alone is up over 80% to last year. The speed at which they've grown makes clear how much runway we have with this channel. In conclusion, we ended our Q3 delivering non GAAP earnings that exceeded our expectations and have done a great job successfully executing our strategic priorities. We feel it prudent to take a cautious view of our forecasted sales. We now expect fiscal 2024 net sales to be $3,150,000,000 Based on the strong outperformance in the quarter, which resulted in higher operating margins, We have the confidence to raise fiscal 2024 non GAAP EPS outlook.

Speaker 2

We're raising our non GAAP net income per diluted share guidance to be in the range of $3.90 to $4 compared to our prior guidance of $3.20 to 3 $0.30 This compares to $2.85 fiscal 2023. I'll now pass the call to Neil for a discussion of our Q3 financial results as well as guidance for the full year fiscal 2024.

Speaker 1

Thank you, Morris. Net sales for the Q3 ended October 31, 2023 were $1,070,000,000 compared to $1,080,000,000 in the same period last year. Net sales of our wholesale segment were $1,050,000,000 compared to $1,070,000,000 last year. Net sales of our retail segment were $33,000,000 for the Q3 compared to net sales of $29,000,000 in last year's Q3. Our gross margin percentage was 40.6% in the Q3 of fiscal 2024 compared to 32% in the previous year's Q3.

Speaker 1

The wholesale segment's gross margin percentage was 39.6% compared to 30.7% in the previous year's comparable quarter. The gross margin percentage last year was negatively impacted by significant one time demurrage charges of approximately $27,000,000 which we incurred in the Q3 of last year. The gross margin percentage in the current year's period was positively impacted by lower freight costs compared to the same period last year. We have been forecasting higher gross margin percentages throughout the year and they came in even better than we had anticipated. The gross margin percentage in our retail operations segment was 49.1% compared to 54.9 percent in the previous period.

Speaker 1

SG and A expenses were 2 $1,000,000 compared to $240,000,000 in last year's Q3. We were able to achieve strong warehousing efficiencies We have incurred throughout the current year. Our current warehouse capacity is now well aligned with our current and planned inventory levels. Non GAAP net income for the Q3 was $130,000,000 or $2.78 per diluted share compared to $66,000,000 or $1.35 per diluted share in last year's Q3, driven by improvements in gross margins, SG and A and less interest expense. Our non GAAP net income per diluted share was significantly above the midpoint of our guidance of $2.08 per diluted share.

Speaker 1

Turning to the balance sheet, we made good progress with respect to our inventory levels. Inventory decreased 34% $592,000,000 at the end of the quarter from last year's $901,000,000 We made strong progress rightsizing our inventory levels as we had appropriately adjusted our buys to account for the higher than usual inventory we carried over from the previous year. We expect to have lower comparable inventory levels at the end of the year as well. We ended the quarter with a net debt position of approximately 2.60 $5,000,000 compared to $729,000,000 in the prior year's quarter end. This decrease in net debt is Primarily a result of cash flows from operations as well as the large decrease in our inventory levels offset by $26,000,000 used We had cash and availability under our revolving credit agreement of approximately $840,000,000 at the close of the quarter.

Speaker 1

Last week, we repaid the remaining $50,000,000 of debt outstanding under the seller's note related to the Donna Karan acquisition. We believe that our liquidity and financial position provide us the flexibility to invest in our future growth and take advantage of opportunities in the marketplace. As for our guidance, based on our performance in the Q3 and our current view of the Q4, we are raising our non GAAP earnings per diluted share guidance. We expect non GAAP net income for the full fiscal year 2024 of between $182,000,000 $187,000,000 over $23.90 $4 per diluted share. This is substantially above our previous full fiscal year guidance of net income in the range of $152,000,000 $157,000,000 or between $3.20 and $3.30 per diluted share.

Speaker 1

This compares to non GAAP net income of $139,000,000 were $2.85 per diluted share for fiscal 2023. We now expect fiscal 2024 net sales to be $3,150,000,000 Full year fiscal 2024 adjusted EBITDA is expected to be between 3.17 and $322,000,000 up from our previously guided range of $284,000,000 to $289,000,000 and compared to adjusted EBITDA of $266,000,000 in fiscal 2023. Let me add some context around modeling. We expect continued gross margin improvement in the 4th quarter, however, at a more moderated pace than we saw in the Q3. In the Q4 of last year, we had started to realize the benefits from decreasing freight rates and we lap a much smaller amount of one time logistics costs.

Speaker 1

We anticipate ending the year with gross margin percentages up approximately 600 basis We anticipate SG and A will delever in the 4th quarter As a result of inflationary pressures on costs, we expect non GAAP interest expense to be approximately $38,000,000 for the full year. We are estimating a tax rate of 28% for the balance of the year. We have not anticipated any potential share repurchases in our guidance. That concludes my comments. I will now turn the call back to Morris for closing remarks.

Speaker 2

Thank you, Neil, and thank you all for joining us today. The past 12 months are a testament to our ability to thoughtfully adjust, Quickly create and bring to market new opportunities for our business. I feel great about our product, Strength across our wholesale segment, digital increases in our prudent inventory management and our financial discipline. We have strong plans in place to drive G3 with our focus on our strategic priorities and these new growth drivers. The strength of our balance sheet affords us financial flexibility to invest in our business and consider additional opportunities.

Speaker 2

I'd like to thank our entire organization for all their hard work. I'm proud of what the team has been able to achieve this year. I'd also like to thank our many partners and all our stakeholders for their continued support. Operator, we're now ready to take some questions. Thank you.

Operator

Our first question comes from Edward Ruma with Piper Sandler. Your line is open.

Speaker 4

Hi, guys. This is Abby on for Ed. Thanks so much for taking our question. You touched briefly on the timeline for Halston and Champion. Can you just contextualize how big that revenue opportunity could be?

Speaker 4

And then as a follow-up, what investments will be required to really The potential of both of those brands. Thank you.

Speaker 2

Thanks for your questions. It's actually a really good one. The Champion brand is for us is a coat license. So the I would say the brand would probably mature at Between $80,000,000 $100,000,000 in sales and that would probably go out 3 to 4 years. The Halston brand, as we described, we're going to classify that as a power brand for us And the opportunity is significant.

Speaker 2

We believe there's an opportunity to bring that north of $500,000,000 Just on product that we will create, produce and ship. And alongside of that, We're going to create an income stream that's derived of licensing income that probably could be north of 20,000,000 And the expense attached to these, They're very modest. One is an option to buy, which is Halston. And the cost of that option is nominal. And alongside of Paying for that option, it's a discounted licensing rate that we pay to the current brand holder, which is Xcel.

Speaker 2

And as far as the cost of entry for Champion, it's a license. It's a guaranteed sales number or guaranteed royalty that we must pay, which is nominal. So the CapEx expenditure or the acquisition cost of both of these brands is very nominal.

Speaker 4

Got it. That's very helpful. Thank you.

Speaker 2

Thank you.

Operator

Please standby for the next question. The next question comes from Will Gardner with Wells Fargo, your line is open.

Speaker 3

Hey guys, thanks for taking my question. So I guess first, Just maybe talk a little bit about what drove the upside to gross margins and SG and A? And then on that, how do we think about the puts and takes into next year? Any Callouts when we're thinking about modeling these two lines.

Speaker 2

So the thank you for your question, Will. Thanks for joining. The margin enhancements occurred as we were Developing and further maturing our brands, we found that the pricing power of our brands We're underestimated. And as we tested pricing, the consumer accepted it. Sales were good and we stayed on course.

Speaker 2

There was no need to take markdowns to move inventory. It was not a promotional period, and it worked out absolutely great. We were able to move through just millions of units of inventory that we carried over and we would assume That when you do that, you need to take a markdown to achieve it. We didn't take markdowns as you see in our results. So, it was a great picture, a new canvas that was really created for us.

Speaker 2

We're now liking the margin format versus top line sales. So we feel the same way as you see our Q4 forecast shows margin enhancement as well and We're adjusting top line down, yet bottom line, There are enhancements due to margin improvements, as well as buying a little bit better, as well as some freight costs coming down. But we're in a margin business. And Neil?

Speaker 3

Yes. As far

Speaker 1

as the look, well, as far as the SG and A, I'd say this most significant category that we had great success in was our warehousing costs, Really based upon a couple of different factors, certainly helps when you can drive inventory down and as Morris Mentioned the strength of the inventory and being able to move it. And look, we've been looking very hard at every aspect of our third party warehousing from space utilization We're negotiating rates, to moving inventory as properly as possible. So we were Very, very fortunate and efficient in the warehousing spend. The last item I call out to is our advertising spend. I think we've been prudent in terms of Placing that where it's been most effective.

Speaker 3

Got it. And then any color into go ahead. Sorry.

Speaker 2

Hey, Will. I'm sorry.

Speaker 3

I was just going to say any color into next year, anything that we should be thinking about, puts and takes?

Speaker 2

It's a little bit early. What I do like is The percentage of business that we're forecasting on our owned brands versus licensed brands, Our own brands are going to derive as they do today, better margin than our licensed brands. So, it's really kind of cool to Focused on better margin businesses, distribution is going to change a little bit in our own brands. So, we're seeing some good things. I can't really speak to the stuff that I can't control.

Speaker 2

There's a lot going on in the world. We all see it. We all read it. We all live it. And that That makes us a little bit conservative in our outlook for the future.

Speaker 2

But short of that, our company is in great shape. We have a talent pool that has been here for years. Consistency in talent that we measure is an important factor in How we grow and how we recreate businesses or create new businesses, Our people know how we think, they respond immediately and there's no learning curve. So this is a great time and a great company to transition new assets.

Speaker 3

And then maybe just one more for me. With the hire of Dana, how are you it sounds like you're thinking about M and A a little bit more going forward. I mean, What is out there? I mean, is there any attractive opportunities that you guys have identified? I know

Speaker 4

you don't have to speak specifically to any, but

Speaker 3

just maybe Talk to sort of the M and A environment and how you're thinking about that?

Speaker 2

Yes. Our culture has always been to Acquire companies, we've done a really good job of that before data. That's We continue looking at opportunities, whether it's licensed or owned. We shop globally. We're astute buyers.

Speaker 2

It shows up in pretty much every acquisition we've made since The 90s has turned out to be a good acquisition. There's nothing that sits in my mind That was poorly calculated and didn't perform. We made use of every acquisition we made. It's one of our company's strengths. So enhancing it and putting somebody from the financial world On our team, we can do nothing but improve what we have.

Speaker 2

And Dana Dana is a known commodity to us. We've dealt with Dana for many years at PVH. PVH was, as you know, a great partner for years and Dana was an important part of Communication and helping us understand PVH and how we work with PVH. And she'll do the same for G3 and Apple with our partners. We look forward to coming to the company.

Speaker 3

Great. That's great. Thank you. I'll pass it on.

Operator

Please standby for our next question. The next question comes from Mauricio Serna with UBS. Your line is open.

Speaker 5

Great. Good morning and thanks for taking my question and congratulations on the I just wanted to ask about the sales guidance. Maybe I missed it, but maybe you could comment a little bit what you're seeing from your wholesale partners. I'm curious just because I think it was lowered and just want to see what are the dynamics there. And maybe if you could remind us like I know you're not guiding next year, but if you could give us a little bit detail on how we should be thinking on when the new licenses and new like business initiatives will be Materializing in your company's P and L, that will be very helpful.

Speaker 5

Thank you.

Speaker 2

Thanks for your question, Mauricio. The outlook, as We all look at retail earnings and forecast It's conservative for the future, for all the same reasons. The consumer is not out there buying aggressively, traffic is down, The economy is not on spending mode. Housing costs are up. Mortgage rates are up and we have The never ending college tuition issues, so There's a lot that's impacting the consumer that's not in our control.

Speaker 2

Everything that we're controlling is doing well. It's difficult to forecast How deep the consumer is going into their pocket. We also have another element that we consider. We are still a large outerwear company and when weather doesn't work our way, we are impacted. But the good news is the recovery is quick.

Speaker 2

Holding over deliveries on coats doesn't necessarily initiate a markdown. So, it's timing and it's amazing how you get a couple of days of cold weather and the pain of warm weather is So it's hard to forecast that, but we saw it As the weather changed last week, our business in the Dakota area got very good. So it's a good place for the pieces that we control, the pieces that we don't. Again, it's hard to give a read for and it's a little bit early for us to forecast next year, But we're the same company with more assets, with a consistent talent pool, with Our balance sheet being stronger than it's ever been. So Those factors all make me comfortable that we're down a good path for the coming year.

Speaker 1

Mauricio, this is Neil. Just to add to the specific timing, Nordica Jeans, As well as the Donna Karan launch will be in spring, so you can expect those to start hitting in our Q1. The Halston is launched before as well as the Champion outerwear businesses. So I would expect that both of those are hitting primarily in the third starting in the Q3 Of next year.

Speaker 5

Great. Thank you.

Speaker 2

Thank you, Mauricio.

Operator

Please standby for our next question. Our next question comes from Paul Kearney with Barclays. Your line is open.

Speaker 6

Good morning, everybody. Thanks for taking my question. Congrats on the results. My first question is on the margins, a bit of a follow-up. So just looking at the model, it looks like margins are a multiyear high.

Speaker 6

I guess, can you maybe help us think about what in here is a structural improvement? What's more transitory? And anything you can kind of help parse out on the year over year drivers? How much was pricing? How much was lower cost?

Speaker 6

How much was better distribution? And I have a follow-up. Thanks.

Speaker 1

Sure. So Paul, look, I think the margins are structurally In place, while the increase to the prior year has some one time benefits, The actual Achieve margin, I think, and our ability to maintain it goes back to what Morris said before about the ability for us to price strong And maintain those prices. We did have lower freight this year. We don't really anticipate that that scenario will change dramatically on us. I think that we can continue to maintain pricing.

Speaker 1

In terms of input costs, we're not seeing anything structurally that To give us pause that this is somehow a unique one time high for us. So we will certainly endeavor to maintain these kinds of margins go forward And that will be based significantly on our ability to maintain price. I think we've always really been able to do a good job in terms of managing the cost side of that equation.

Speaker 6

Okay. Thanks. And then my follow-up is on price and I guess trying to square with the comments on the pressures on the consumer. Inventory purchases are still conservative. I guess what gives you confidence that as costs come down, Prices won't have to soon follow in the intermediate term.

Speaker 6

Thanks.

Speaker 2

We don't really sell commodities. We're a fashion business. We sell fashion. We create demand. And When fashion is in demand and you do your job appropriately, you get paid for it.

Speaker 2

If you don't, you need to take the markdown and move product. We have a history of doing the right thing as far as the creative side. We add Amazing quality to our product and the consumer sees always sees value in our pricing. It's not arbitrarily just raising your price and saying we're going to get $10 more for this dress because we can. We add value, whether it's accessory value, whether it's branding value, we're spending A good deal of money on marketing going forward and that generates demand and demand generates sales.

Speaker 2

If all the pieces are all put together and done appropriately, you get the price that you're trying to achieve. We have a history. We have a long history. It's a consistent thesis. Thank you.

Speaker 2

Thank you,

Operator

Chris. Please standby for our next question. The next question comes from Ash Ashley Owens with KeyBanc. Your line is open.

Speaker 4

Great. Thanks for taking the questions. Just on Karl Lagerfeld, you've seen good momentum This year, we have several initiatives in place there. We just like to hear your thoughts on how you're seeing the opportunity within that brand for next year. And then any additional color on how the other brands are currently performing internationally versus domestically and how that's progressing would be helpful.

Speaker 4

Thanks.

Speaker 2

Thanks for your question, Ashley. We have a big internal bet on Lagerfeld. The bet is it's going to be our biggest percentage growth brand. It's doing great. It had a good year.

Speaker 2

It's having a good year and the guidance that we're getting from our retail partners is There's an amazing amount of growth opportunity with the brand. In door count and penetration within doors, Product is selling, all the categories are working. It's a brand that makes you smile when you see it. It's got unique attributes and we love that acquisition And we're expanding licensing opportunities. As I spoke to the lifestyle opportunities We have in hospitality, food and beverage and unique situations, it was really originated By Lagerfeld, there's a high demand for unique situations.

Speaker 2

So we'll also other than the demand for our product is Demand for opportunities with the brand. I think sooner or later, and I'm going to bet this sooner, Within the next 90 days, we'll probably announce a hotel development in New York City. So there's some really Exciting things that are going on with the brand. And as far as global, The weather was tough throughout Europe. From what I understand, it's The warmest weather in 150 years.

Speaker 2

And in spite of that, we're growing DKNY, We're growing Lagerfeld and we're growing Vilebrequin. So the weather impacted parts of our business, our food business is soft, our Coat business is soft, sweater business is soft, but the fast moving fashion pieces worked well. So We're learning how to operate globally. We're not having the same success in China, but Europe And the Far East has been really good markets for us.

Speaker 4

Great. Really appreciate it. Thanks.

Speaker 2

Thank you, Ashley.

Operator

The last please stand by for our next question. The last question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Speaker 4

Good morning, everyone, and so nice to see the progress and congratulations on the hiring of Dana Pearlman. I think that'll be a terrific addition. And Morris, you used one of my favorite words, grow and growing. When you think about the strength that you have this quarter and certainly the About wholesale even with more cautious or conservative orders, how do you break down the wholesale strength whether by brand, whether by channel or wholesale department stores off prices or whatever it may be? And what are you seeing there?

Speaker 4

And do you see that strength continuing? Does it continue because of categories? Does it continue because of Pricing, how do you think of the levers moving forward? Thank you.

Speaker 2

It continues because of many factors, primarily the underlying talent that makes it happen. It's an aggressive group that discovers opportunities that most people just overlook. We are beyond just a brand. I think we're proving that out now. Give our company a start up situation with putting a focus, putting our people on the focus of building it, We can build a startup and make it effective very quickly.

Speaker 2

We're proving that out. Brands were underachievers in the hands of the competition or other people. And we take them on, We embellish them. We give them love and care and put a little money behind it. Relationships that we have with Retailers are amazing.

Speaker 2

We get support the moment we Pivot of brand, the first question is, well, what do you want us to do? We're in. And that's really not the norm. That comes with many years of building that trust. And I would venture to bet that if you spoke to any major retailer in the United States, they're aware of us, they trade with us and They're happy with the relationship.

Speaker 2

We put as a paramount focus The profitability of the retailer without their being able to be profitable, we have no shot. So our first focus is Understanding what they need to be profitable, build around it, retain the DNA of what we're marketing, And there's a huge payback. There's loyalty, there are orders, there's cooperation. So it's not a practice that everybody follows and it comes from Continuity of culture, same management team running the company for decades, it's not a bait and switch situation. That's it.

Speaker 2

It's a great place to be. It's been fun building it. This phase, there aren't many companies That could survive looking at giving up 50% of their top line sales and forecast And we'll be more profitable in a period of time when they're looking at maintenance and growth at the same I'd say it's an amazing story.

Speaker 4

Just one other thing, when you think about other Additions to the licensing portfolio, is there a cap on how many you could do or do you think of it as size or number?

Speaker 2

Yes, there certainly is a gap. We're not in the business of the days of us looking at A license, a random license and creating just revenue to the extent of $20,000,000 $30,000,000 It's really not us. It's got to be an important brand for us to either acquire it or license it. There are some unique Situation is a little bit unique. It's a relationship.

Speaker 2

We needed Another coat brand to shore up what we ultimately give back and Champion turns out to be Yes, just a great solution for a part of what we're giving back. But we're not out there shopping for a multitude of brands. We need scale, we need focus, and each brand has an entire management team. It doesn't cost our company much more to build a $1,000,000,000 brand as to maintain a $100,000,000 brand. So the focus is large.

Speaker 4

Thank you.

Speaker 2

Thank you, Dana. Thanks for your question. With that, operator, I think we are done. And thank you everyone for your interest and support. We wish you and your families a wonderful holiday season and a happy healthy New Year.

Speaker 2

Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • G III delivered non‐GAAP EPS of $2.78 in Q3—more than double last year’s $1.35—and achieved an 18% operating margin versus 9% in the prior year, driven by stronger gross margins, moderated freight costs and disciplined SG&A.
  • The company has launched four new strategic brand initiatives—repositioning Donna Karan, expanding Nautica in North America, securing a master global license (with purchase option) for Halston, and a multi‐year outerwear license for Champion—with new sales expected as early as spring 2024.
  • Inventory was reduced by 34% to $592 million, enabling better warehousing efficiency and faster turns, while conservatively timing new inventory buys to match demand and reduce carrying costs.
  • G III raised its full‐year fiscal 2024 outlook, now expecting net sales of $3.15 billion, non‐GAAP EPS of $3.90–$4.00 (up from $3.20–$3.30), and adjusted EBITDA of $317–$322 million, reflecting confidence from Q3 outperformance.
  • Own brands—DKNY, Karl Lagerfeld, Donna Karan and Vilebrequin—continued double‐digit growth through expanded categories, new global licenses, fragrance launches and digital channel gains (Amazon up 80%).
A.I. generated. May contain errors.
Earnings Conference Call
G-III Apparel Group Q3 2024
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