Executive Summary / Key Takeaways

• G-III Apparel Group is undergoing a significant transformation, strategically pivoting from a heavy reliance on expiring Calvin Klein (PVH) and Tommy Hilfiger licenses towards aggressive growth in its owned brands (DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin) and new licensed partnerships.
• This strategy is yielding results, with owned brands collectively demonstrating strong double-digit growth and new licenses like Donna Karan and Nautica Jeans exceeding initial expectations and offsetting lost revenue from exited businesses.
• Despite macroeconomic uncertainties and supply chain challenges, G-III delivered record non-GAAP EPS of $4.42 in fiscal 2025 and reaffirmed its fiscal 2026 net sales guidance of approximately $3.14 billion, anticipating modest growth in the second half driven by new initiatives.
• The company faces a significant headwind from estimated unmitigated tariffs of approximately $135 million in fiscal 2026, predominantly weighted to the second half, leading to the withdrawal of full-year bottom-line guidance, though mitigation efforts are underway.
• G-III possesses a strong balance sheet and operational foundation, including diversified sourcing capabilities and investments in technology, positioning it to pursue future growth opportunities and navigate competitive pressures as it builds its go-forward portfolio.

A Strategic Evolution in the Apparel Landscape

G-III Apparel Group, Ltd. operates within the intensely competitive fashion markets, a global leader leveraging expertise in design, sourcing, distribution, and marketing across a diverse portfolio of over 30 owned and licensed brands. For decades, G-III has demonstrated a remarkable ability to adapt, tracing its roots from factory-based origins in New York City to becoming a sophisticated global operator with a supply chain spanning over 40 countries. This history of agility, moving production from South Korea to Indonesia, Mongolia, and China, underscores a foundational strength in navigating the complexities of global manufacturing.

A pivotal moment arrived approximately two years ago with the unexpected announcement of the staggered expirations of significant Calvin Klein and Tommy Hilfiger licenses, beginning in late 2024. These licenses, which G-III had been instrumental in building into multi-billion dollar businesses in North American women's wholesale, represented a substantial portion of the company's revenue. This challenge served as a catalyst, accelerating G-III's strategic imperative to transform its business model and secure its future by reducing dependency on these specific partnerships.

The core of this transformation lies in two key pillars: aggressively driving the growth of its owned brands and strategically building a complementary portfolio of new licensed assets. This strategic pivot is designed not only to replace lost revenue but to enhance long-term profitability, as owned brands typically generate higher operating margins and provide accretive licensing income streams.

G-III's operational strength is underpinned by a well-developed global sourcing and supply chain infrastructure. The company has proactively diversified its production, reducing its reliance on China from nearly 90% several years ago to under 20% by the end of fiscal 2026, excluding outerwear. This capability is a significant competitive advantage, allowing G-III to adapt quickly to changing trade policies and cost pressures. Furthermore, the company is investing in technology to enhance its operations, including systems for supply chain transparency, upgrading digital tools to support its omnichannel strategy, and leveraging AI to streamline processes and phase out less useful technology. While specific quantifiable performance metrics for these technologies are not detailed, the stated goals are clear: improve efficiency, enhance digital capabilities, and optimize the supply chain, all contributing to G-III's ability to compete effectively.

In the competitive landscape, G-III faces established players like PVH Corp. , VF Corporation (VFC), Capri Holdings (CPRI), and Tapestry, Inc. (TPR), as well as fast-fashion giants and e-commerce platforms. G-III's strength lies in its broad portfolio and deep relationships with retailers, positioning it as a preferred vendor capable of delivering a wide range of products across various price points and channels. While competitors like PVH and CPRI may hold stronger positions in premium or luxury segments with higher gross margins (PVH typically 50-55%, CPRI 60-65% vs. GIII's TTM 40.33%), G-III's licensing and sourcing expertise often allows for more cost-efficient operations and faster product development cycles. The company's strategy to fill the void left by expiring PVH licenses by leveraging its credibility and execution track record directly challenges PVH's efforts to manage these categories internally or through new partners like Herman Kay-Mystic LLC. G-III's investments in digital capabilities aim to counter the e-commerce strengths of players like TPR, while its diversified sourcing provides an edge in navigating supply chain volatility compared to competitors with more concentrated manufacturing bases.

Performance Reflecting Strategic Momentum

The strategic pivot is already translating into tangible financial results. Fiscal year 2025 saw G-III deliver net sales of $3.18 billion, a 2.7% increase from the prior year, powered by robust growth in its key owned brands. DKNY, Karl Lagerfeld, Donna Karan, and Vilebrequin collectively grew over 20%, successfully offsetting anticipated declines of $188 million from the Calvin Klein and Tommy Hilfiger businesses and $40 million from the exited Guess (GES) brand license. This growth in higher-margin owned brands contributed to a 70 basis point expansion in the fiscal 2025 gross margin percentage, reaching 40.8%.

The momentum continued into the first quarter of fiscal 2026, with results exceeding the high end of guidance. Net sales for the quarter ended April 30, 2025, were $583.6 million, a decrease from $609.7 million in the prior year, primarily due to the anticipated decline in licensed products. However, this was largely mitigated by double-digit growth in the key owned brands. The wholesale segment saw net sales of $562.6 million, down from $597.8 million, while the retail operations segment experienced a significant increase to $36.4 million from $30.5 million, driven by increased sales at DKNY and Karl Lagerfeld Paris stores and strong comparable store sales.

Profitability metrics underscore the impact of the strategic shift. The wholesale gross margin percentage in Q1 fiscal 2026 was 40.4%, a slight decrease from 40.9% due to product mix, but benefiting from the higher proportion of owned brand sales. The retail segment's gross margin percentage saw a substantial improvement to 53.5% in Q1 fiscal 2026 from 47.0%, attributed to better product assortment and higher average unit retail prices for Donna Karan digital sales. Selling, general, and administrative expenses decreased to $231.5 million in Q1 fiscal 2026 from $236.6 million, reflecting lower advertising and compensation costs, partially offset by increased bad debt expense related to retailer bankruptcies like Hudsons Bay Company. Interest and financing charges decreased significantly to $0.5 million from $5.4 million, primarily due to the redemption of the $400 million Senior Secured Notes in August 2024. Net income for Q1 fiscal 2026 was $7.8 million, or $0.17 per diluted share, compared to $5.8 million, or $0.12 per diluted share, in the prior year.

G-III's financial health remains strong. As of April 30, 2025, the company held $257.8 million in cash and cash equivalents and had approximately $480 million available under its $700 million revolving credit facility, totaling approximately $740 million in liquidity.

The company was in compliance with all debt covenants. Cash provided by operating activities was $93.8 million in Q1 fiscal 2026, reflecting seasonal working capital dynamics.

The company has actively managed its debt, redeeming the $400 million Senior Secured Notes in fiscal 2025 and upsizing its ABL facility, resulting in lower interest expenses.

Investments continue to be made in strategic initiatives, including capital expenditures of $8.1 million in Q1 fiscal 2026, primarily for information technology, and approximately $50 million planned for the full fiscal year 2026, focused on new brand build-outs and technology.

Outlook and Forward Momentum

Looking ahead, G-III is focused on executing its growth strategy despite a challenging and uncertain environment. The company reaffirmed its net sales guidance for fiscal year 2026 at approximately $3.14 billion. This outlook anticipates that the continued strong growth of the owned brands and the scaling of new licensed businesses will largely offset the sales decline from the Calvin Klein jeans and sportswear licenses that expired at the end of fiscal 2025, which contributed approximately $175 million in revenue in the prior year.

Management anticipates a sales cadence weighted towards the second half of fiscal 2026, with expectations for a low single-digit increase in the third quarter and a mid-single-digit increase in the fourth quarter, driven by new fall and holiday launches. Gross margins are expected to see slight expansion in fiscal 2026, supported by the increasing penetration of higher-margin owned brands. The North American Retail segment is specifically targeted to reach breakeven in fiscal 2026, which is expected to enhance operating income by approximately $14 million.

A significant factor impacting the fiscal 2026 outlook is the potential impact of incremental tariffs. G-III estimates the unmitigated tariff impact to be approximately $135 million, predominantly affecting the second half of the year. This uncertainty led the company to withdraw its full-year net income, non-GAAP net income, and adjusted EBITDA guidance for fiscal 2026. Mitigation efforts are actively underway, including leveraging sourcing diversification (China production below 20% target), vendor negotiations, selective retail price increases (particularly in categories like outerwear where G-III sees pricing power), disciplined inventory management, and operational efficiencies.

New licensed initiatives are key to the forward strategy. The global Converse (NKE) apparel license, launching in Fall 2025, is expected to provide access to a differentiated consumer base and distribution channels, including big box and sports specialty stores, with a potential to reach $200 million in sales in a reasonable timeframe. The BCBG license is also set to launch in Fall 2025. The investment in AWWG is expected to drive over $200 million in incremental sales across the Iberian market over the next three to five years for DKNY, Donna Karan, and Karl Lagerfeld.

Risks and Considerations

While G-III's strategic transformation shows promise, investors should be mindful of several key risks. The estimated $135 million unmitigated tariff impact in fiscal 2026 represents a material headwind that could significantly pressure profitability if mitigation efforts are less effective than anticipated. Ongoing global supply chain disruptions, including Red Sea issues, port congestion, and challenges in shipping from China, could lead to delays, increased costs, and impact the timely delivery of product.

The fashion industry remains intensely competitive, requiring constant evaluation and response to changing consumer preferences. While G-III's diversified portfolio aims to mitigate this, misjudging trends could negatively impact sales. The financial health of retail partners is also a risk, as demonstrated by the Hudsons Bay Company bankruptcy, which can lead to reduced business and increased bad debt expense.

The staggered expiration of the remaining Calvin Klein and Tommy Hilfiger licenses through 2027 will continue to be a top-line headwind that must be offset by growth in other areas. While G-III is confident in its ability to capture market share as PVH transitions, the success of this strategy is not guaranteed. Furthermore, the identified material weakness in internal control over financial reporting within the KLH subsidiary, while stated not to have resulted in material misstatements, requires diligent remediation to ensure the integrity of financial reporting processes.

Conclusion

G-III Apparel Group is in the midst of a profound strategic transformation, proactively reshaping its business model in response to the expiration of key licenses. The company's focus on accelerating the growth of its owned brands like Donna Karan, DKNY, and Karl Lagerfeld, coupled with the addition of strategic new licenses such as Converse and BCBG, is demonstrating early success and providing a clear path for future revenue generation. While significant challenges remain, particularly the potential impact of tariffs and ongoing supply chain volatility, G-III's deep operational expertise, diversified sourcing capabilities, and strong balance sheet provide a solid foundation. The company's ability to execute its strategic initiatives, mitigate external headwinds, and capitalize on the opportunities presented by the evolving retail and licensing landscape will be critical determinants of its long-term success and value creation for shareholders. The narrative is one of adaptation and reinvention, with the potential for a stronger, more profitable G-III emerging as the transformation unfolds.