Blame it on the weather — again.
Two key retail industry analysts maintained their ratings on G-III Apparel Group — although they dropped the price target on the stock — after the company missed Wall Street consensus estimates Thursday for its third quarter reported, due in part to soft outerwear sales. In after-market trading, the stock fell 7 percent. But at the midday session today, shares had recouped, up 8 percent to $29.
Dana Telsey, chief research officer at Telsey Advisory Group, maintained a “market perform” rating on the stock, but lowered the price target to $25 from $37 while Eric Beder at Wunderlich Securities kept a “buy” rating on it while dropping the target to $33 from $55.
Morris Goldfarb, G-III’s chairman and chief executive officer, said the wholesale outerwear category was impacted during the quarter by the warmer weather. He told Wall Street analysts that the company plans to reduce its outerwear business over the next few years as a way to mitigate the impact of warmer weather. Beder said in his note this morning that “it will be frustrating to investors that despite new brands and diversification, G-III remains a hostage to the weather in the second half.”
Goldfarb told investors that the company’s non-outerwear businesses are the company’s strongest performers — which is indicative of a market that is feeling the impact of climate change. For G-III, paring down its outerwear offerings is a departure from the company’s origins. The supplier was founded in 1956 by Aron Goldfarb who, after surviving the Holocaust, came to the U.S. to launch an outerwear company.
G-III is not alone in its weather woes. As WWD recently reported, the impact of climate change on apparel is widespread and has flattened the seasonality of the business. Apparel vendors in the wool and synthetic sweater segment are seeing demand wither while retailers selling sweaters and outerwear have been traumatized by weak sales, and as a result have trimmed inventories this year. Meanwhile, cotton prices have climbed as the growing season is impacted.
Combatant Gentlemen ceo Vishaal Melwani told WWD that climate change has not affected wool sourcing or manufacturing, “but it has affected us on the cotton side. Climate change has been slowing crop growth, and we’ve seen prices inch upward between 5 and 6 percent within the past two years.”
Companies have responded with new technologies in textile manufacturing. Investors have grown weary of volatility in the apparel and retail market due to climate change, which has also impacted retail traffic. Today, citing data from Morningstar, Reuters reported that following record warmth, some U.S. fund managers have pulled out of apparel stocks. The news service said about 48 percent of U.S. active equity funds have no investments in apparel companies, which compares to 38 percent one year ago.
And for the investors who have stayed in the segment, they’ve not been kind to apparel stocks — often taking profits and dumping shares at the drop of a hat. Shares of G-III, for example, are down about 60 percent from a company high reached in June 2015, which was the summer before a record warm winter.
Beder, in his current report, was hard on the company. “After the debacle last year in outerwear, we assumed G-III management has taken the most conservative tack possible for colder weather gear sales; obviously, that was not the case, as [third-quarter earnings per share] of $1.50 was 4 cents below the street and revenue of $883 million was $55 million below the street,” he said. “Wilsons Leather registered a comp of minus 20 percent and GH Bass minus 11 percent, while wholesale outerwear sales fell $68 million, entirely offsetting gains in non-wholesale outerwear.”
For some brands, an overall challenging retail sector is putting additional pressure on shares. Columbia Sportswear Co., for example, which is trying to weather the closure of Sports Authority by repositioning itself in the market, has seen its shares fall 20 percent since June of 2015.
Still, there are anomalies in the market. Both Canada Goose and Moncler parkas are growing again this season, and were seen in force Thursday along Fifth Avenue — despite unseasonably mild temperatures in the low 50s. Next week, Planalytics is forecasting cooler weather, and said it should help outwear sales.