G-III Apparel Group, Ltd. (NASDAQ:GIII) Q2 2020 Earnings Conference Call Transcript

Sep 05, 2019 • 08:30 am ET

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G-III Apparel Group, Ltd. (NASDAQ:GIII) Q2 2020 Earnings Conference Call Transcript

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Presentation
Executive
Morris Goldfarb

with an update on our sourcing operations and tariffs. For many years we've emphasized that proficiency in our global sourcing capabilities and our strong vendor relationships. Our strength has always been to deliver great quality product that's priced competitively and delivered on time. As we've shifted production globally, we've historically moved with our long standing vendors who've overseen new factory development. We believe that consistent management oversight and expertise are essential, regardless of the country of origin. Four years ago, we sourced about 80% of our production from China. In spite of the fact that our overall business has grown dramatically, we estimate production in China will be down to less than 50% this year. Most importantly, we've done so with the comfort of knowing that we are in the right countries with the right partners. We believe we have significant additional sourcing opportunities outside of China over the next several years.

Now let me address tariffs. As the risk of tariffs have increased over the past six months, we strategically accelerated inventory receipts from our suppliers, which is reflected in our higher inventory balances as compared to the second quarter of last year. I just recently met with several of our largest Chinese vendors who continue to be extremely supportive in sharing the tariff cost implemented today. Our ability to accelerate inventory receipts, as well as obtain vendor support are expected to minimize the impact of tariffs on our financial results for this fiscal year.

Looking ahead to next year, while the effect of trade negotiations and tariffs between the US and China remains uncertain, we expect to be able to mitigate the impact of tariffs through continued expansion of our sourcing alternatives, obtaining further price concessions from our vendor partners in China and implementing selective wholesale price increases where we deem appropriate.

Our wholesale business remains a key driver of our results. Calvin Klein, our largest business and one of the dominant resources in the women's apparel market, had another solid quarter of growth. I'm also pleased to report that the extension of our partnership with PVH as a result of the new women's CK Jeans license is off to a very strong start. Our partnership with PVH is something we do not take for granted. We appreciate the fact that they continue to provide us with new opportunities. The newly developed CK Jeans product line has garnered significant interest and generated a strong initial order book. Shipments will begin from this holiday season. We believe that we can build a substantial lifestyle women CK Jeans business that will grow to $250 million in annual sales over the next several years.

We continue to develop our product base to increase the diversification of our classification businesses. Over the last year, we developed an internal strategy to make denim a significant classification for the Company. With the launch of CK Jeans, the expansion of our Tommy Jeans collection and the future launch of DKNY Jeans, we will become a