What happened

Shares of G-III Apparel Group, Ltd. (NASDAQ:GIII) were heading lower today after the apparel manufacturer reported third-quarter earnings this morning. Though the results were mostly in line with estimates, investors seemed unsatisfied, and the pressure from the broader market sell-off appeared to weigh on the stock as well. As of 11:36 a.m. EST, shares were down 15.3%.

So what 

G-III, which owns apparel brands like DKNY and Andrew Marc and licenses brands including Tommy Hilfiger, Calvin Klein, and Kenneth Cole, said revenue in the quarter rose 4.7% to $1.07 billion, which just missed estimates at $1.08 billion. Gross profit in the quarter actually declined from $391.1 million to $382.1 million, though it wasn't clear why, as gross margin was down from 38.2% to 35.6%. However, the company slashed selling, general, and administrative expenses, and net income before taxes was essentially flat at $127.9 million.

A shelf of multicolored sweaters in a clothing store.

Image source: Getty Images.

G-III benefited from a lower tax rate from the Tax Cuts and Jobs Act, and that drove adjusted earnings per share up from $1.67 to $1.88, topping expectations at $1.81. Since a majority of its business is wholesale, G-III makes most of its annual profit in the third quarter as stores stock up for the holiday season.

CEO Morris Goldfarb said:

In our largest shipping quarter, the continued momentum in our wholesale business enabled us to surpass our third quarter earnings guidance. We again demonstrated great ability to successfully leverage our five global power brands. Our products are setup well across our channels of distribution for the important holiday season and we believe we will have a strong finish to the year.

Now what 

G-III also raised its full-year guidance, calling for revenue of $3.08 billion, up from previous guidance at $3.06 billion. On the bottom line, the company sees adjusted earnings per share of $2.67 to $2.77, better than its prior range of $2.52 to $2.62.

Given the solid earnings results and higher guidance, the stock's sell-off is puzzling. One possible reason is trade tensions with China, which shook markets on Tuesday and today, following the arrest of Chinese smartphone maker Huawei's CFO yesterday. G-III is particularly vulnerable to tensions with China, including a potential tariff on apparel, as it sources more of its goods from China than from any other country, and it acknowledges tariffs on Chinese goods as a risk factor.

G-III shares fell 6.7% on Tuesday, a sign the stock is especially sensitive to trade tensions with China. Given those concerns, today's earnings report was not enough to reassure investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.