By David Clucas
For vendors, unlike retailers, its never the bad winter that hurts them the most. It’s the following season that really bites.
That’s when wholesale orders pull back to work off the previous year’s leftover inventory.
Following last year’s very warm winter along the East Coast (despite cooler and snowier weather in the West), retailers are taking a conservative approach with outerwear heading into fall 2016, said officials at sportswear and lifestyle apparel maker G-III Apparel Group (Nasdaq:GIII).
The company, which makes license and team sportswear for the NFL, MLB, NBA, NHL, MLS via various brands including Starter, in addition to its lifestyle brands Calvin Klein, Tommy Hilfiger and its recently-acquired Donna Karan and DKNY brands, could be providing a preview of what’s to come in the active-lifestyle sector, particularly relating to outerwear.
G-III officials said slumping outerwear wholesale orders and weak retail traffic at its Wilson and GH Bass stores led to it missing its fiscal 2017 second-quarter sales guidance by $40 million.
Total sales for the period, ended July 31, 2016, fell 6.7 percent to $442 million, which included a 7.7-percent in wholesale shipments to $361 million and a 10-percent drop in retail sales to $100 million. Gross margins slipped just 30 basis points to 35.2 percent, somewhat limiting the damage to the bottom line, which swung to a net loss of $1.3 million, or 3 cents per share, compared to a net profit of $12.5 million or 27 cents per share during the same period a year ago. The figure reflected about $3 million in costs (or 4 cents per share) related to its Donna Karan acquisition.
“Our second-quarter results did not meet our expectations,” G-III Apparel Group Chairman, CEO and President Morris Goldfarb told investors on the company’s August 30 conference call. He pinned the decline all on outerwear, pointing out that the company’s non-outerwear wholesale business remained strong, rising by double digits.
At retail, the brand, like its wholesale customers, had to cutback on orders to manage its own inventory.
GH Bass, its 160-store chain focused on outdoor lifestyle, saw comp sales fall 10 percent in the quarter. Wilsons, with 190 men’s and women’s outlet coat and accessories stores, reported comp sales down 17 percent in the quarter.
“We successfully focused on clearance, but with the traffic drop in outlet centers, we had to sacrifice some in-season business and did not make our comp goals during the quarter,” Goldfarb said. “We anticipate some improvement in the back half of the year, particularly in the fourth quarter with easier comparisons.”
But the disappointing second quarter forced the company to narrow its guidance downward, including a projected high-single-digit decline in outerwear sales for the full 2017 fiscal year. It still expects sales to grow, albeit less-so, at 6 percent to $2.48 billion with net income between $102 million to $106 million, or $2.16 to $2.26 per diluted share, compared to a previous sales guidance of $2.56 billion and net income between $120 million to $125 million or $2.55 to $2.65 per diluted share.
That led to punishment on Wall Street, as investors drove the stock down more than 20 percent August 30, following the release, to less than $34 per share.
Company officials are forecasting the outerwear carnage to be the worse in the third quarter — with a planned double-digit percentage decrease in sales for the category — offset by continued gains in non-outerwear sales and then a better market for outerwear in the fourth quarter as retailers fill in with with outerwear re-orders.
“We think inventories are in good shape, both for us and for our customers, including in the off-price channel,” Goldfarb said. The company’s inventory is actually down 6 percent from a year ago, about in line with the sales drop. “We’ve reduced our forecast but we believe there will be an appetite for product reorders as the selling season progresses. With the visibility we now have, we think we’ve captured the right view of the season.”
Photo courtesy G-III/GH Bass