G-III Apparel's Q3 2026 Earnings Call Contradictions: Acquisition Strategy Shift, Tariff-Driven Margin Pressures, and Licensing Pipeline Revisions

Date of Call: October 31, 2025

Financials Results

• Revenue: $989 million, compared to $1.09 billion in the same period last year
• EPS: $1.90 per diluted share, compared to $2.59 per share in the previous year
• Gross Margin: 38.6%, compared to 39.8% in the previous year's third quarter

Guidance:

• Fiscal year 2026 net sales expected to be approximately $2.98 billion, a decrease of approximately 6% to last year.
• Non-GAAP diluted EPS expected between $2.80 and $2.90, up from prior year.
• Full year gross impact of tariffs estimated at approximately $135 million, with unmitigated impact of approximately $65 million.
• Gross margins for the full fiscal year 2026 expected to be down approximately 200 basis points.
• Key owned brands (DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin) expected to grow at a mid-single-digit rate this year.
• Interest expense expected to be approximately $1.5 million for the full year.
• Capital expenditures estimated at approximately $40 million.
• Tax rate estimated at approximately 29.5% for fiscal 2026.
• No potential share repurchases anticipated for the fourth quarter.
• Remaining PVH brand sales anticipated to be approximately $400 million in next year's fiscal 2027.

Business Commentary:

• Strong Profitability Amid Tariffs:
• G-III Apparel Group reported Q3 net sales of $989 million, with non-GAAP earnings per diluted share of $1.90, exceeding the high end of their guidance range.

• This profitability was driven by the strength of their owned brands, a healthy mix of full-price sales, and mitigation efforts against tariffs.

• Impact and Mitigation of Tariffs:

• The gross impact of tariffs is estimated at $135 million for the fiscal year, with an unmitigated impact of $65 million.

• The company absorbed a larger share of these costs to remain competitive and protect market share, particularly in the North American wholesale business.

• Growth of Owned Brands:

• Donna Karan is expected to grow by 40% in fiscal 2026, with strong sales increases in North America.

• Growth was driven by the brand's iconic DNA, aspirational luxury positioning, and successful digital marketing campaigns.

• PVH Licensing Partnership Decline:

• Sales from Calvin Klein and Tommy Hilfiger licenses declined, with these brands now expected to generate approximately $800 million annually.

• The decline was quicker than anticipated, but the company offset lost sales volume through organic growth of their owned and licensed portfolio.

• Digital and Direct-to-Consumer Growth:

• Digital sales grew nearly 20%, with significant traffic lifts on owned dot-com sites, driving substantial growth in conversion rates.
• This growth was attributed to marketing investments that increased consumer engagement and aligned product offerings with consumer preferences.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'strong profitability' and earnings exceeding the high end of guidance. They noted 'solid year-to-date performance' and 'significant progress' in business transformation post-PVH partnership end. Brand-specific successes were cited (e.g., Donna Karan 'outperformed expectations' with 'impressive double-digit sales increases'). The company raised its full-year non-GAAP EPS guidance and announced its first-ever dividend program, reflecting confidence in long-term growth.

Q&A:

• Question from Robert Drbul (BTIG): Can you unpack the gross margin performance and provide more color on the tariff mitigation, pricing, and gross margin outlook for next year?
  Response: Gross margin outperformance in Q3 was driven by strong full-price selling. The $65M unmitigated tariff impact for FY26 is largely absorbed in Q4. Going forward, the company intends to know costs upfront and pass them to price to achieve normal margins, supported by higher-margin owned brands and pricing power.

• Question from Robert Drbul (BTIG): As you look to next year, with PVH licenses at $400M, any preliminary thoughts on top line or bottom line goals?
  Response: The company has several potential strategic actions (acquisition, new license, distribution) in development but sees no rush, emphasizing a strong balance sheet and cautious execution.

• Question from Ashley Owens (KeyBanc): How does the accelerated PVH decline reshaping the mix and what is the timeline for a cleaner base?
  Response: The decline accelerates but the company is not in control; PVH's own brand execution seems lacking, opening opportunities for G-III to expand its own or acquired brands in fashion categories.

• Question from Ashley Owens (KeyBanc): What are the priority levers to keep Donna Karan's momentum going and scale it?
  Response: Focus is on improving product, expanding distribution in premium department stores, leveraging strong digital performance and repeat customers, and capitalizing on higher price points and international expansion.

• Question from Mauricio Serna Vega (UBS): Can you detail the performance of newer licenses like Nautica, Nike/Converse, and BCBG?
  Response: Nautica is growing nicely and scaling well. Halston shows promise with a long-term $250M-$300M opportunity. BCBG is performing to initial expectations. Converse apparel is off to a strong start. The company targets scalable licenses with at least $100M potential within three years.

• Question from Mauricio Serna Vega (UBS): What should we expect for Q4 gross margin contraction and spring '26 margin pressure?
  Response: Tariff impact was light in Q2, more significant in Q3, and greatest in Q4. Therefore, margin pickups are expected to reverse this pattern into next year.

• Question from Dana Telsey (Telsey Advisory): How have recent wholesale order trends been, particularly for own brands? Are retail initiatives like extended sizing or own retail incremental for 2026?
  Response: Order trends were strong with high full-price sell-throughs across brands. All initiatives (e.g., Donna Karan's Weekend line, Karl Lagerfeld men's expansion, international penetration) represent organic growth opportunities for top-line and margin expansion without acquisition pressure.

Contradiction Point 1

Outlook for Acquisitions and New Business Development

A clear shift from a proactive, capability-driven M&A strategy to a patient, non-rushed approach signals a potential change in capital allocation priorities and growth strategy, which is a substantial change in company direction.

Preliminary thoughts on next year's revenue and profit targets? - Robert Drbul (BTIG)

20251209-2026 Q3: The company is exploring strategic options like acquisitions or licenses but has no rush. The focus is on executing synergistic actions... - Morris Goldfarb(CEO)

Does hiring Dana indicate a renewed focus on M&A moving forward? Are there any attractive opportunities currently under consideration? - Frederick Gaertner (Wells Fargo)

2024Q3: M&A has always been part of the company's culture and strength. The hiring of **Dana Perlman** as Chief Growth and Operations Officer is to enhance and formalize this capability. The company continues to look globally for acquisitions (licensed or owned) and has a history of successful integrations. - Morris Goldfarb(CEO)

Contradiction Point 2

Gross Margin Structural Improvement vs. Tariff-Induced Pressure

This is a direct contradiction between a previously asserted "structural" margin improvement narrative and the admission of a significant, unmitigated tariff headwind. It fundamentally changes the expected trajectory of a key financial metric for the upcoming year.

Can you explain the gross margin performance? Will you fully mitigate tariffs and adjust pricing next year? - Robert Drbul (BTIG)

20251209-2026 Q3: For FY2026, the unmitigated tariff impact is ~$65M." and "Tariff impact was light in Q2, more significant in Q3, and highest in Q4. - Neal Nackman(CFO)

How much tariff pressure is expected in spring 2026 given Q4 gross margin guidance implies a ~400 bps contraction? - Mauricio Serna Vega (UBS)

2024Q3: The margin improvements are seen as **structural**, driven by the ability to maintain strong pricing... While lower freight was a benefit, the focus is on sustaining margins through continued pricing power and cost management. - Neal Nackman(CFO)

Contradiction Point 3

Pipeline and Scale of Licensing Opportunities

The shift from highlighting specific, large-dollar licensing opportunities (Halston, Champion) to a generic focus on "scalable brands" that reach a similar revenue threshold represents a significant change in how management communicates growth potential and pipeline quality.

Can you detail the performance of newer licenses like Nautica, Nike (Converse), and BCBG? - Mauricio Serna Vega (UBS)

20251209-2026 Q3: The company maintains a capital-light approach, focusing on scalable brands that can reach $100M+ in sales within 3 years. - Morris Goldfarb(CEO)

Could you elaborate on the timeline and potential revenue size for Halston and Champion? - Edward Yruma (Piper Sandler)

2024Q3: The **Champion** license... is expected to mature at **$80–$100 million in sales over 3–4 years**. **Halston**, a new "power brand," has a product opportunity **north of $500 million**, plus **licensing income potentially over $20 million in the next 3 years**. - Morris Goldfarb(CEO)

Contradiction Point 4

Tariff Impact and Mitigation Strategy

This contradiction reveals a tactical shift in financial strategy regarding cost absorption vs. price-passing. Moving from absorbing costs to explicitly planning to pass them on through pricing in the next fiscal year is a material change in operational and financial planning.

Can you explain the gross margin performance? Will you fully mitigate tariffs next year, and how will pricing impact this? - Robert Drbul (BTIG)

20251209-2026 Q3: For FY2026, the unmitigated tariff impact is ~$65M. In FY2027, the company intends to pass on tariff costs through pricing to achieve normal margins... - Neal Nackman(CFO)

What factors should we consider for gross margin for the balance of the year? How are you balancing promotions and price hikes with mixed consumer signals? Will there be continued margin pressure in H1 next year? - Ashley Owens (KeyBanc Capital Markets Inc.)

2026Q2: The company is absorbing more tariff costs in the near term to stay competitive... Over time, margins are expected to improve as owned brands (higher margin) increase in penetration. - Morris Goldfarb(CEO)

Contradiction Point 5

Pricing Power and Strategy for Owned Brands

This contradiction frames the same pricing actions in two very different lights: as proactive, retailer-cooperative strategy in one quarter, and as reactive cost-passing measures in another. This affects the perceived strength and sustainability of the company's pricing power.

Can you explain the gross margin performance? Will you be able to fully mitigate the tariff impact and adjust pricing in the coming year? - Robert Drbul (BTIG)

20251209-2026 Q3: For FY2027, the company intends to pass on tariff costs through pricing to achieve normal margins... - Neal Nackman(CFO)

Are these price increases focused on newer, less widely distributed brands, or where in the product assortment (dresses, coats, etc.) do you see the most opportunity to raise prices? - Ashley Owens (KeyBanc Capital Markets)

2026Q1: We are getting strong retailer cooperation for targeted price increases, not arbitrary ones. New brands like Donna Karan and Karl Lagerfeld have strong pricing power due to limited off-price distribution and high-quality, aspirational products. - Morris Goldfarb(CEO)