Why G-III Apparel Group Stock Tumbled Today Despite a Strong Earnings Report

What happened

Shares of G-III Apparel Group, Ltd. (NASDAQ: GIII) were heading lower today after the apparel manufacturer reported third-quarter earnings this morning. Though the results were mostly in line with estimates, investors seemed unsatisfied, and the pressure from the broader market sell-off appeared to weigh on the stock as well. As of 11:36 a.m. EST, shares were down 15.3%.

So what

G-III, which owns apparel brands like DKNY and Andrew Marc and licenses brands including Tommy Hilfiger, Calvin Klein, and Kenneth Cole, said revenue in the quarter rose 4.7% to $1.07 billion, which just missed estimates at $1.08 billion. Gross profit in the quarter actually declined from $391.1 million to $382.1 million, though it wasn't clear why, as gross margin was down from 38.2% to 35.6%. However, the company slashed selling, general, and administrative expenses, and net income before taxes was essentially flat at $127.9 million.

A shelf of multicolored sweaters in a clothing store.

Image source: Getty Images.

G-III benefited from a lower tax rate from the Tax Cuts and Jobs Act, and that drove adjusted earnings per share up from $1.67 to $1.88, topping expectations at $1.81. Since a majority of its business is wholesale, G-III makes most of its annual profit in the third quarter as stores stock up for the holiday season.

CEO Morris Goldfarb said:

In our largest shipping quarter, the continued momentum in our wholesale business enabled us to surpass our third quarter earnings guidance. We again demonstrated great ability to successfully leverage our five global power brands. Our products are setup well across our channels of distribution for the important holiday season and we believe we will have a strong finish to the year.

Now what

G-III also raised its full-year guidance, calling for revenue of $3.08 billion, up from previous guidance at $3.06 billion. On the bottom line, the company sees adjusted earnings per share of $2.67 to $2.77, better than its prior range of $2.52 to $2.62.

Given the solid earnings results and higher guidance, the stock's sell-off is puzzling. One possible reason is trade tensions with China, which shook markets on Tuesday and today, following the arrest of Chinese smartphone maker Huawei 's CFO yesterday. G-III is particularly vulnerable to tensions with China , including a potential tariff on apparel, as it sources more of its goods from China than from any other country, and it acknowledges tariffs on Chinese goods as a risk factor.

G-III shares fell 6.7% on Tuesday, a sign the stock is especially sensitive to trade tensions with China. Given those concerns, today's earnings report was not enough to reassure investors.

10 stocks we like better than G-III Apparel Group
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and G-III Apparel Group wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 14, 2018

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of G-III Apparel Group. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Stocks
Referenced Symbols: GIII

More from Motley Fool


Motley Fool

Motley Fool

Market News, Investing

Research Brokers before you trade

Want to trade FX?