G-III Apparel Group Ltd. has brushed off concerns about Calvin Klein, calling the brand its “trophy business.”
Morris Goldfarb, who is chairman and chief executive officer of G-III, which has the license for many Calvin Klein products, excluding jeans and underwear among others, told investors during a conference call following the release of its third-quarter earnings that the brand performs “incredibly well.”
“I can only speak to really the women’s piece of the business and I can speak to the American piece of the business and the outerwear piece of the business that we have in both genders. There’s nothing better,” he said. “I wish I could find another Calvin Klein for long-term growth. The brand is still an aspirational brand and we believe there’s plenty of runway left to continue to grow this.”
His comments follow a difficult week for the brand after its owner PVH Corp. revealed Thursday that Raf Simons’ high-concept overhaul of CK Jeans was a “fashion miss” and investments in his halo runway collection, dubbed 205W39NYC, will be cut as marketing budgets shift to influencers and more approachable messaging.
The troubles at the brand raise questions over Simons’ future at Calvin Klein given that his contract is up for renewal in August. He currently has direct oversight of the underperforming 205W39NYC collection and jeans, as well as a raft of other categories, global marketing and communications, visual creative services and store design.
While Goldfarb said that there are some pieces he would like to see perform a little better like handbags, he stressed that in general there is not an issue with the brand at G-III, which sees strong demand for Calvin Klein products.
As for Calvin Klein halo, Simons’ runway collection that PVH has invested as much as $70 million in and which G-III does not have the license for, Goldfarb told WWD it was never meant to be profitable.
“The halo doesn’t really affect us. I think it was good strategy to help keep the brand current. Some perceive it as a brilliant marketing move. I don’t think the halo was ever intended to be profitable and it’s a small piece of the business and it’s not ours. It’s PVH’s”, he said. “As they created the halo piece, we were happy to see it. The halo piece does not hurt us. If anything it brought more attention to the brands.”
Moving to another big issue of the week — tariffs — Goldfarb was “relieved,” but not surprised that on Saturday President Donald Trump and China’s President Xi Jinping made a deal that the U.S. would hold off on its plans to increase levies on $200 billion worth of Chinese imports — many of which are consumer-facing and include handbags. Duties were set to rise to 25 percent from 10 percent on Jan. 1.
“I don’t believe the tariffs increase would help anybody in our industry,” he said, adding that G-III had already started to diversify its sourcing network and is now in Vietnam and Cambodia. The firm is also in the process of moving much of its leather apparel into India. And while the firm still has a sizable footprint in China, its vendors have assured the company that it would share the problem with them.
This all came as G-III’s stock slid 14.4 percent to $34.91 Thursday after its sales figures fell short of Wall Street’s expectations. Net sales increased 4.7 percent in the third quarter to $1.07 billion, below the consensus forecast of $1.08 billion. In particular, wholesale sales growth, especially for its Calvin Klein brand, was “impacted unfavorably by the bankruptcy of Bon–Ton Stores, with the largest impact occurring in the third quarter.”
Net income rose to $94 million, or $1.86 per diluted share, from $81.6 million, or $1.65 per diluted share, a year earlier.
For the fiscal year 2019, G-III expects net sales of approximately $3.08 billion and net income between $132 million and $137 million, or between $2.59 and $2.69 per diluted share. It previously forecast net sales of $3.06 billion and net income of between $125 million and $130 million, or between $2.45 and $2.55 per diluted share.
G-III has an array of businesses, including the DKNY and Donna Karan brands, which it owns outright, and Calvin Klein, Tommy Hilfiger and Karl Lagerfeld, which it produces goods for under license. It also has a stake in the Lagerfeld business.