What happened
Shares of G-iii Apparel Group (GIII 0.95%) were plunging after the company best known for licensing brands like Calvin Klein, DKNY, and Tommy Hilfiger missed profit estimates in its third-quarter earnings report and slashed its guidance for the year. It also said it was losing the Calvin Klein and Hilfiger licenses.
As a result, the stock was down 43.3% as of 12:36 p.m. ET.
So what
Revenue rose 6% to $1.08 billion in the quarter, which topped the consensus at $1.06 billion, but the company ran into inventory management problems as, like other retailers, it stocked up on merchandise in anticipation of supply chain delays that never materialized. The company finished the quarter with double the inventory of a year ago, at $900 million.
Due to the excess inventory, the company faced logistical challenges at its warehouse, which led to a one-time expense of $0.40 per share. Adjusted earnings per share, which include the impact from the inventory challenges, fell from $2.18 to $1.35, which missed expectations at $1.81.
G-iii also announced license extensions with PVH for certain categories of Calvin Klein and Tommy Hilfiger through 2024 to 2027, but PVH intends to take back control of those brands after those licenses expire, leaving G-iii without two of its strongest brands.
Despite the challenges in the third quarter, G-iii CEO Morris Goldfarb said the company was well positioned for the holiday season, noting in a press release, "For the fourth quarter of fiscal year 2023, our order book is strong, and we are well positioned to meet the demand of our retailers for the holiday season." He also said the company is pursuing growth initiatives, including acquisitions, that will presumably help replace the lost business from PVH.
Now what
For the full year, G-iii now expects revenue of $3.15 billion, up 14% from a year ago and just above the consensus at $3.12 billion. However, on the bottom line, it sees adjusted earnings per share falling from $4.20 to $2.90-$3.00, well below the consensus at $3.58.
G-iii now trades at a price-to-earnings ratio of just 4, but given the inventory challenges and the upcoming loss of Calvin Klein and Tommy Hilfiger, the stock is cheap for a reason. Stay tuned for the company's plans to replace lost sales from those brands.
