G-III Apparel Sees Sales Dip Tariff Hit

G-III Apparel Group (NASDAQ:GIII) reported second quarter fiscal 2026 results on September 4, 2025, with net sales of $613 million, GAAP diluted EPS of $0.25, and healthy growth from core owned brands despite headwinds from expiring licenses and elevated tariff costs. Management issued updated full-year guidance of $3.02 billion in net sales and non-GAAP diluted EPS of $2.55 to $2.75, reflecting a 5% year-over-year sales decline driven by license exits and $75 million in unmitigated tariff impacts.

Gross margin contracts as tariff impact intensifies

Gross margin declined 230 basis points year-over-year (YoY) to 40.8%, attributed to an accelerated flow of tariff-impacted inventory and unfavorable product mix, with wholesale margins at 38.9% and retail at 52.4%. Management expects the bulk of the approximately $75 million unmitigated tariff drag to weigh on the second half, with near-term absorption required due to the timing of retailer orders and limits on in-season pricing action.

"Gross margins in the quarter were impacted by higher than expected tariff costs, driven primarily by a greater volume of tariff inventory shipments than initially forecasted. We're actively mitigating these pressures through a combination of vendor participation, selective sourcing shifts, and targeted pricing. In the near term, we're absorbing a portion of these costs to remain competitive and capture market share. Looking ahead, we anticipate gross margins will largely normalize and ultimately expand as we exit licenses as the penetration of our owned brands increases and as we continue to take selected price increases."
-- Morris Goldfarb, Chairman and Chief Executive Officer

This accelerated margin compression in FY2026 constrains current profitability but positions the company for future gross margin expansion as owned brands grow and low-margin licenses are sunsetted.

G-III accelerates transformation to owned brands and digital

Donna Karan, Karl Lagerfeld Paris, and DKNY all produced strong results, with digital channels outperforming expectations, while Karl Lagerfeld posted over 30% North America growth and expanded into approximately 150 additional points of sale for fall 2025. The company is reallocating resources from expiring Calvin Klein and Tommy Hilfiger licenses, opening new category and geographic opportunities, and investing in digital tools such as 3D design and AI automation to drive efficiency and engagement.

"Capturing the long-term potential of our owned brands is one of our top priorities. Owned brands represent an important and sustainable long driver as they generate higher operating margins and provide an accretive licensing income stream. Our strategy centers on leveraging each brand's iconic DNA to deliver differentiated product to a wide array of consumers in their shopping channel of choice. We are rapidly scaling each brand's full lifestyle product offering by extending existing assortments while expanding into new categories. This has enabled us to unlock accelerated growth across the wholesale channel, particularly in North America. Through our licensing partners, the brands have expanded into complementary categories such as fragrance, eyewear, and home, as well as experiential categories like hospitality, culinary, and refined leisure, all broadening consumer touchpoints and deepening brand affinity. We're investing in the brand's e-commerce presence. Importantly, our own brands remain highly underpenetrated internationally, presenting a significant opportunity for long-term expansion."
-- Morris Goldfarb, Chairman and Chief Executive Officer

The pivot toward scaling higher-margin owned brands and investing in omnichannel technology will support long-term profit growth, diversify sales, and lessen reliance on volatile licensed businesses.

Disciplined license exit and supply chain realignment mitigate risk

Second quarter net sales declined by $32 million YoY, primarily due to the phased exit of Calvin Klein jeans and sportswear licenses, with guidance reflecting a $175 million full-year sales loss from expired PVH (Phillips-Van Heusen Corporation) categories and an additional $30 million potential impact from Indian production in Q4. Inventory increased by 5% year-over-year to $640 million as of Q2 to anticipate tariff shocks, and the company maintained a net cash position of $286 million post-$25 million in share repurchases.

"we are responsibly planning our exit from the expiring Calvin Klein and Tommy Hilfiger licenses and staying disciplined in our inventory positions based on the increased cost pressures and narrower selling period. Additionally, we are foregoing sales due to the recent 50% tariff rate on India. This decision was made to protect margins. It is important to note our key owned brands, DKNY, Donna Karan, Karl Lagerfeld, and Vilboccon continue to show healthy growth and are expected to grow in a mid-single-digit rate this year."
-- Neal Nackman, Chief Financial Officer

Management’s cautious inventory stance, focus on margin preservation, and maintenance of financial flexibility provide critical downside protection as the company navigates market transitions and macroeconomic headwinds.

Looking Ahead

Management expects net sales of approximately $3.02 billion (down 5% YoY), non-GAAP diluted EPS of $2.55 to $2.75, adjusted EBITDA of $198 million to $208 million, and a full-year gross margin rate down 300 basis points. Owned brands are projected to grow at a mid-single-digit pace, while sales from PVH-related licenses will contract to approximately $400 million in FY2027 following expiry. Planned capital expenditures total $40 million, focused on technology and new shop-in-shops; no share repurchases are included in guidance.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.