The acquisition of Donna Karan helped G-III Apparel Group Ltd.’s sales over 2016 but its profits fell by more than half, causing its stock to hit a four-year low.
After seeing its net income for 2016 drop by more than half, to $51.9 million from $114.3 million a year earlier, despite a 1.8 percent increase in sales to $2.4 billion from $2.3 billion, the company’s stock fell 14.1 percent to $19.69.
G-III attributed the modest sales growth to its wholesale non-outerwear business, as well as increased sales of Donna Karan International, but said even those increases were offset by “softer demand” for outerwear on a broader scale, along with a decline in retail business.
Meanwhile, net sales for the fourth quarter went up by 14.4 percent, to $603 million from $527 million a year ago, including $29 million in sales from DKI over only the last two months of the quarter. The company officially acquired Donna Karan for $650 million late last year.
G-III ended the quarter with a net loss of $20 million compared with net income of $8 million at the end of 2015.
G-III chairman and chief executive officer Morris Goldfarb said during a call with analysts that 2016 posed a challenge “across the industry” and that unseasonably warm weather “combined with accelerated consumer migration to e-commerce [put] pressure on traditional retailers this past year.”
He added that the company’s Wilsons and Bass retail businesses alone tallied a loss of $57 million over 2016 compared to a loss of $2 million the prior year.
Given these “unacceptable” results, Goldfarb said nearly 60 Wilsons and Bass stores will be closed by the end of the current fiscal year and another 55 will be closed during the following year. A third of the closings are expected during the first quarter.
“We’ve experienced dramatically better results for the select Karl Lagerfeld Paris stores that have already been repurposed from either Bass or Wilson,” Goldfarb said.
G-III will also be cutting costs by integrating the “retail infrastructure” of Wilsons, Bass and Donna Karan, leaving them to share a single “efficient platform,” which will save the company about $12 million a year.
As for its wholesale business, the company wants to become “the premier wholesale provider of women’s apparel to retailers across the country,” and Goldfarb touted G-III’s now five “global power brands” — DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld.
“We anticipate growth in each of these brands over the next several years,” Goldfarb said, noting that the company plans to reach $5 billion in annual net sales in the future.
“I’m more confident than ever that we can realize these goals.”
Goldfarb added that G-III’s largest retail customers “have the scale, the capital and the ability” to succeed with fewer stores and a greater online presence and the company’s brands are “positioned to be an important part of the continued success with these retailers.”
Going forward in 2017, a year in which G-III plans to ship about $175 million in DNKY and Donna Karan product alone, G-III plans on things to improve markedly, with a 5 percent increase in net sales to $2.73 billion leaving net income of between $40 and $45 million.
“We believe we have what is needed to prosper in a disrupted retail environment,” Goldfarb said. “We have great design and merchandise planning, efficient sourcing, responsive customer service, expense management, financial discipline, careful inventory management. All of these elements are essential to drive in sales and profit.”