G-III Profits Bounce Back With Tighter Inventories

After more than 50 years in fashion, Morris Goldfarb, chairman and chief executive officer of G-III Apparel Group, has developed a knack of keeping his balance — even when the rug is pulled out from under him.

It was just over a year ago that PVH Corp. decided to go its own way and take back its licenses for Tommy Hilfiger and Calvin Klein over a number of years, essentially walking away with half of G-III’s sales over time.

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While that was a heavy blow — and one that has yet to really land — it seemed to energize Goldfarb, who moved rapidly to line up alternatives, repositioning Donna Karan and signing licenses for Nautica, Halston and Champion.

The churn starts next month, when PVH takes back the Tommy jeans license and G-III pushes ahead with Nautica jeans.

That’s just the beginning.

In an interview with WWD, Goldfarb was more bullish than ever as he praised his team for work over a hectic year and for the kind of inventory management that helped it post big third-quarter profit gains even as sales slipped modestly.

“It’s probably been the best quarter we’ve ever had,” Goldfarb said. “Our margins are off the charts. The accomplishments are just mind-boggling, for a company in our industry to have a clear path to how we reposition half our business is unheard of.”

G-III’s net income increased to $127.6 million in the third quarter from $61.1 million a year earlier. Adjusted earnings per share tallied $2.74 — 68 cents better than the $2.06 analysts projected, according to FactSet.

The bottom-line gain stood out against sales for the three months ended Oct. 31, which slipped 1 percent to $1.07 billion from $1.08 billion a year earlier.

Inventories were cut by 34 percent from a year earlier and were down about 40 percent at just wholesale.

“You would assume that with the amount of residual inventory that we had to move that we would have to take serious markdowns to move it and it worked the other way around,” Goldfarb said. “We had margin enhancement, we were surprised at how well we would move our inventory.

“We decided that if we took markdowns to move more inventory that it will affect the rest of the year in margins — once we’ve established a price point, we’re stuck with it for the remainder of the year,” the CEO said. “We also said early on that we were going to be bottom-line-driven. At the end of the day, top line doesn’t generate the value of the company, the bottom line does.”

Soon, the market will have a chance to see how that ethos plays out across a number of new propositions, including Nautica jeans and Donna Karan.

While DKNY has been the star since G-III bought Donna Karan International in 2016, Goldfarb said the namesake Donna Karan brand “will be important to G-III’s future.”

The brand is being elevated to the position Calvin Klein holds and Goldfarb said Donna Karan would grow big enough to fill the hole left by Calvin Klein at G-III. The new Donna Karan starts shipping at the end of the first quarter and will be backed up by an advertising campaign at the end of the second quarter.

Goldfarb also pointed to Halston, which the company holds the master license for and has the option to buy.

Halston is “shaping up to be as good as Donna Karan,” the CEO said. “The brand has a far broader appeal than I thought. I took it on to be a filler, but it’s not going to be a filler, it’s going to be a leader.”

G-III also signed a multiyear license with HanesBrands Inc. to make Champion apparel.

Goldfarb might go deeper there, too, as sources say G-III is among the players looking to buy Champion outright.

If G-III were to make that deal — Authentic Brands Group, WHP Global and Marquee Brands are all said to be looking, too — Goldfarb would have a little extra C-suite help.

G-III also said it hired Dana Perlman as chief growth and operations officer, effective Jan. 8.

In the newly created role, Perlman will oversee strategy, finance, communications, information technology and other operating functions. She brings with her 10 years of experience from PVH, where she was chief strategy officer and treasurer.

Goldfarb said Perlman knows the business well and will be able to hit the ground running.

“Dana’s going to be very essential in M&A,” he said.

Clearly, there’s still more to come from G-III, which also nudged up its profit expectations for the year.

The firm now expects adjusted EPS of $3.90 to $4, up from the $3.20 to $3.30 projected in September.

But the top-line estimate also came down with sales now pegged for $3.15 billion, instead of the $3.3 billion seen in September.

G-III’s stock closed down Tuesday 1.3 percent to $29.24.

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