Why G-III Apparel's Wholesale Exposure Remains A Concern Despite Strong Q2 Earnings

Telsey Advisory Group analyst Dana Telsey reiterated the Market Perform rating on G-III Apparel Group, LTD. GIII with the same price target of $22.

The analyst applauds GIII's efforts to increase its higher-margin owned-brand exposure, grow its DTC penetration, and strengthen its owned brand portfolio. 

While Telsey remains concerned about GIII losing CK and TH (~50% of sales) by 2027, the expansion of the DK brand, the growth of Karl Lagerfeld, as well as the Nautica, Halston, and now Champion licensing agreements should help offset the CK and TH losses, while helping to improve visibility. 

The company reported second-quarter FY24 sales growth of 9% year-on-year to $659.76 million, beating the analyst consensus of $592.32 million. The gross profit rose 20.8% Y/Y to $276.6 million, with the margin expanding 410 basis points to 41.9%.

The beat was driven by better-than-expected results across the board as sales growth and operating deleverage came in significantly ahead of expectations, and gross margin expansion modestly beat the prior consensus, notes the analyst.

Telsey notes that GIII's second-quarter outperformance and subsequent full-year guidance raise are encouraging, particularly in a choppy macro environment.

On the negative side, macro pressures continue to weigh on the consumer, and GIII's wholesale exposure remains a concern in the current operating environment, according to the analyst. 

Also Read: These Analysts Boost Their Forecasts On G-III Apparel Group Following Upbeat Q2 Results

Price Action: GIII shares are trading lower by 1.38% to $23.65 on the last check Friday.