Bank of America: G-III Has A Tariff Problem

Apparel designer G-III Apparel Group, Ltd. GIII is unlikely to show any earnings growth in fiscal 2020 as it is unable to offset new tariffs with price increases, according to BofA.

The Analyst

Bank of America analyst Heather Balsky downgraded G-III Apparel Group's stock rating from Buy to Neutral with a price target lowered from $35 to $21.

The Thesis

The bullish case for G-III's stock in part came to an end after its biggest retail partner Macy's Inc M downplayed consumer appetite for price increases, Balsky wrote in the downgrade note. In addition, G-III's largest licensor PVH Corp PVH also suggested it will be difficult to pass on higher prices to consumers at a time when the apparel retail environment is slowing down.

More than 85% of all G-III sales are U.S. based, so the company has minimal opportunity to offset tariffs through price increases in the international markets, the analyst wrote. This is due to the fact that international shoppers tento be more price inelastic.

The financial toll to G-III could be as much as 450 basis points of annualized gross margin pressure. The research firm is lowering its 2019 EPS estimate by 33 cents to $2.98 while 2020 estimate is lowered by 93 cents to $2.36. This suggests the company will show a 4% EPS growth in 2019 but a 21% decline the following year.

Price Action

Shares of G-III Apparel Group hit a new 52-week low of $18.18 Wednesday morning and were trading higher by 1.4% Wednesday afternoon at $19.12.

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