G-III Apparel (GIII) Q1 Earnings Beat, Tariff Woes Hurt Stock
Zacks Investment Research | Jun 06, 2019 07:59AM ET
G-III Apparel Group, Ltd. (NASDAQ:GIII) posted first-quarter fiscal 2020 results, wherein top and bottom lines improved year over year. Moreover, earnings beat estimates, marking the company’s ninth straight bottom-line beat. Quarterly results benefited from the sturdy performance of its wholesale business. Further, management reiterated its view for fiscal 2020 and provided encouraging guidance for the second quarter.
However, the company remains disappointed with the tariff environment, which has been weighing on some of its product categories, particularly handbags. This business represented about 7% of its annual net sales in fiscal 2019. Notably, the first round of tariffs of 10% has significantly impacted the handbags business over the past few quarters. This tariff is now increased to 25%, effective from May 10. The company estimates the 15% increase in tariffs to result in cost increases of nearly $6 million for the rest of fiscal 2020.
Though this impact of costs has been incorporated in the company’s guidance, the forward guidance does not include any additional rise in tariffs.
Meanwhile, G-III Apparel is looking to combat the situation by seeking alternative sourcing networks to move production out of China. Additionally, the company has been successful in getting price concessions from its China vendors. Also, it received approvals for price increases from some of its customers in the United States. Clearly, the company is looking to combat the tariff impacts by engaging in talks for vendor concessions and price increases for retailers. Though this strategy looks promising, the company expects some short-term disruptions on its operating results.
Despite the strong results and reiterated view, concerns regarding the increase in tariffs and results of costs and price increases hurt investor sentiment. Consequently, shares of the company declined nearly 9.4% on May 5. In the past three months, this Zacks Rank #3 (Hold) company has moved down 29.5%, much wider than the industry ’s decline of 0.6%. The decline in stock has been more prominent over the past month, reflecting a 36.9% decline.
Q1 in Detail
Adjusted earnings improved 13.6% year over year to 25 cents per share and surpassed the Zacks Consensus Estimate of 22 cents. Earnings gains reflect strong top-line growth, offset by lower gross margin.
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G-III Apparel Group, LTD. Price, Consensus and EPS Surprise
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