Dive Brief:
- G-III Apparel Group has made significant progress in rightsizing its inventory, freeing up cash and giving the company confidence to raise its profit expectations, executives said last week.
- Inventories fell 23% YoY to $804.9 million in Q2 while cash levels rose nearly 31%, according to a press release. For the fiscal year, G-III expects gross margin to expand by 4.5 percentage points compared to last year, CFO Neal Nackman told analysts.
- Chairman and CEO Morris Goldfarb told analysts the company remains “disciplined in our approach to future inventory buys and have appropriately adjusted our warehousing needs as our inventory levels have aligned.” He added that new purchases carried lower freight costs
Dive Insight:
Retailers and brands have spent more than a year trying to clear inventory and match stock levels to volatile consumer demand.
As Q2 reports roll in, many apparel sellers — including Guess Inc. and Kohl’s, among others — have said they have cleared out excess inventory and lifted their margins. That comes, however, after painful discounting throughout 2022 and, for some, into 2023.
G-III’s struggles with inventory were profound. By the end of Q3 last year, inventories had more than doubled from 2021 levels while net income and cash levels had fallen precipitously. The company even this year was shelling out for extra warehousing costs to store all that extra inventory, analysts with Telsey Advisory Group pointed out in a June note.
G-III — a sourcing and design specialist that owns proprietary brands (including the DKNY and Karl Lagerfeld labels) as well as designs and sources products for other brands under licenses — has a window into how the entire industry is grappling with the long-running inventory issues.
G-III’s department store customers are re-ordering at consistent levels, Goldfarb said. He pointed to a calmer discounting environment than might be anticipated given the persistent concerns and analyst questions about inventory.
The company’s chief also highlighted differences in value within its inventories, which has impact on how it might be flushed out of the system.
“The belief — the common belief is, if you're sitting with an aggressive amount of inventory, you're going to have to take monstrous markdowns to move it,” Goldfarb said. “We’re not giving it away where our inventory has got great value. Our retailers are appreciating it, and the consumer is buying it.”
Still, G-III has “tempered our buying this year” going to the holidays, Nackman said. As the company pulls back on inventory buying, it also has more cash and a smaller debt position, according to the finance chief.
