G-III Apparel: Q1 2025 was good for its brands; The stock is now more attractive (NASDAQ:GIII)

G-III clothing group (NASDAQ:GII) is a group of fashion brands. The company owns brands such as Karl Lagerfeld, DKNY, Donna Karan and Vilebrequin. It also licenses brands such as Calvin Klein and Tommy Hilfiger.

This article analyzes the company’s results for the first quarter of 2025 And Earnings call. The company did not achieve agreed revenues and posted a flat top line. This may have resulted in the stock price falling by 15% after the release. However, under the hood, results have been very good for company-owned brands, with revenue growing 16% year over year. Bottom line, the company met expectations and maintained profit margins despite headwinds in the licensed business. The dynamics of margins is a positive sign when forecasting business margins after the loss of CK and TH licenses. G-III also announced an equity investment in a brand manager and wholesaler focused on the Iberian Peninsula and India.

I initiated coverage of G-III in March 2024 with a Buy rating. My assessment was based on the company’s good, long-term equity management, low leverage, and the company’s branding potential. Although there is significant uncertainty regarding margins for company-owned brands, the share price means that relatively low margins are needed to get a decent return. As we will discuss, the company’s fundamentals have improved, while its price has remained stable. For this reason, I’m keeping my Buy rating at G-III.

Good results under the hood

G-III’s 1Q25 results headline was not good. The company missed consensus revenue by about 1% and posted flat sales. The stock is down 15% since the earnings announcement. I find the reaction to be an exaggeration, because if we dig into the details, we find a lot of reasons to be happy with the results of the third group.

First, we need to separate the results for the company’s two segments (licensed and proprietary brands), as shown in the 10-Q quarter.

Sales in the company’s licensed segment fell by 13%. This was expected given that the company’s leading licensed brands (CK and TH) did not perform well in the quarter, its owner, PVH Corp., reported. (PVH). Readers should remember that G-III will lose the licenses representing most of this business in late 2025.

On the other hand, company-owned brands (which will make up most of the business after losing licenses) grew 16.7% during the quarter. This is a great character. Moreover, brands have grown in wholesale sales, which is a very difficult channel in the United States. Reports from most apparel brands in the past few weeks have shown weakness in the US wholesale channel.

The profit results are also encouraging. Gross margins increased 130 basis points, as private label brands achieved higher gross margins and gained weight during the quarter. Inventories fell 22% although sales were flat.

Operating margins were flat, declining by 30 basis points (from 2.5% a year ago to 2.2% this year). Margins decreased due to SG&A growth of $10 million compared to last year (the company says this comes from marketing investments, especially from the relaunch of the Donna Karan collection).

Despite the slight decline in margin, I find these results encouraging. The weight of the company’s licensed brands in revenue fell by seven percentage points (from about 51% a year ago to 44% in the first quarter of 2025), but margins were roughly flat. This indicates that the profitability of private brands is not significantly different from the profitability of licensed brands.

Finally, this quarter’s lower margin (versus an operating margin of 9.5% TTM) is to be expected, given that Q1 is a seasonally low quarter for G-III. Most of the company’s sales (60 to 65%) occur during the second half of the year, as described below and as commented on the company’s 10-K (sub-seasonal). Although this quarter lacks relative importance, I believe the trends we have seen are positive.

Brand developments

The company commented on brand developments in its own brands. The most important thing, which has already been analyzed, is the explosive growth in revenue. This was driven by access to wholesale accounts and shelf space in legacy accounts (for example, by expanding product categories).

Starting with Karl Lagerfeld, the brand launched its suit and jeans collection, two categories it had not been involved in before. It also found partners to expand the brand’s leisure business (hotels and villas) in Dubai and Portugal. Management also announced that streaming service Hulu has launched a miniseries based on the life of Karl Lagerfeld. A film about the designer is also being evaluated. All of this speaks to the brand value behind the name. Vilebrequin is also winning the licensing game, with plans to open fifteen partner-run beach clubs under the brand name in luxury holiday locations.

DKNY launched its fall collection starring Kaia Gerberg (10 million followers on Instagram). The campaign is based on the “Heart of New York” play on the city’s famous slogan, “I (Heart) New York.”

After revamping the brand and products, Donna Karan makes her debut. The launch campaign featured several established actresses, including Cindy Crawford, Linda Evangelista, Caroline Murphy, Amber Valletta and Karlie Kloss. The brand is still a small part of G-III’s portfolio, but management is confident it will show significant growth during the spring 2025 campaign (which will be sold during the second half of this fiscal year).

Finally, G-III announced a $54 million investment in brand management company AWWG Group for a 12% stake. AWWG operates three private label brands in the aspirational lifestyle space (Pepe Jeans London, Hackett and Faconabble). The company is also a strong distributor of PVH in the Iberian Peninsula and India. According to management during the call, AWWG generated revenue of $650 million last year. G-III expects AWWG to help its own brands grow in Europe. Management commented during the call that it expected to increase its stake in AWWG to 20% within the year and possibly more in the future.

The evaluation is more attractive

G-III has a market capitalization of $1.22 billion, which, after adjusting for cash and debt, results in an EV of $1.15 billion, essentially flat from the prior quarter. However, the company’s fundamentals have improved significantly, so I think the stock is still in the buy phase.

G-III’s directed revenue was $3.2 billion for the year, representing conservative growth of about 3.5%. Within the cap, this is split between its own brands, which grow to 70% of sales, while licenses decline.

If we ignore the licensed business entirely, G-III’s guidance implies revenue of $2.24 billion for fiscal 2025 from owned brands. The problem is that we don’t know the operating margins for these brands.

What margin would be necessary to generate a 10x EV/NOPAT multiple on a $1.15 billion EV? With a NOPAT of $115 million and an effective tax rate of 30%, we reached operating income of $164 million. This in turn represents an operating margin of 7.3% on revenue of $2.24 billion.

I think a 7.3% profit margin on owned brands is very doable. First of all, the company currently achieves a TTM operating margin of 9.4%. Last year, owned brands generated 45% of sales, so their margin cannot differ significantly from 9.4%, otherwise gross margins would be lower. Furthermore, as noted above, for Q1 2025, owned brands generated 7 percentage points of revenue compared to licensed brands, yet operating margins did not decline. This also indicates that company-owned brands are not much less profitable than licensed brands.

Therefore, even if owned brands were two percentage points less profitable than the company average, we would still achieve a 10% Earnings Yield on EV for G-III, based on owned brand business alone.

In addition, licensed works come free. We can subtract the value of the licensed business (which will continue for this and the next fiscal year) from the company’s electric vehicle. This means either a lower required margin for the private label business or a lower multiple (higher return) for the same margin. In my previous article, I considered the licensed business to represent around $170 million in future profits. At a margin of 7.3%, this would reduce the EV/NOPAT multiple on the private business to 8.5x.

These multiples, or conversely the margin required in the business, provide an attractive opportunity, considering the quality characteristics of G-III. The company has been a big player in its core market (aspirational lifestyle outerwear) for several decades. Its owned brands have good brand equity, as evidenced by its licensing to the entertainment and film industries and its recent growth in a challenging context. The company is not highly leveraged, with more cash than debt. Its management owns an 11% stake in the company (FY24).

Therefore, I still view G-III as a buy after 2025 Q1 results.