Good day, and welcome to the G-III Apparel Group First Quarter Fiscal 2026 Earnings Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to turn the call over to Neal Nackman, company Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining us. Before we begin, I would like to remind participants that certain statements made on today's call and in the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guaranteed and actual results may differ materially from those expressed or implied in forward- looking statements. Important factors that could cause actual results of operations or the financial condition of the company to differ are discussed in the documents filed by the company with the SEC. The company undertakes no duty to update any forward-looking statements. In addition, during the call, we will refer to non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA, which are all non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to GAAP measures in our press release, which is also available on our website. I will now turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Good morning. Thank you, Neal, and welcome, everyone. We delivered solid first quarter results with earnings outperformance that exceeded the high end of our guidance. Our first quarter results were driven by double-digit growth of our key owned brands, DKNY, Karl Lagerfeld and Donna Karan, mostly offsetting the lost sales of the exited Calvin Klein jeans and sportswear license business. These results are a testament to our ability to execute our strategic priorities by leveraging our diverse portfolio of globally recognized brands and our unwavering commitment to disciplined brand building and operational excellence. As we've entered the second quarter, we saw a cooler weather negatively impacting early spring. As the weather got more seasonal, we've seen positive sales momentum across our brands, channels and regions. We're cautiously optimistic about the consumer environment and are encouraged by the health of our brands and business as we execute in the second quarter and are actively taking advantage of the market disruption to further capture market share. Before reviewing our quarterly results, I want to address the broader macroeconomic environment and the recent tariff developments. While the global landscape remains uncertain, we are staying focused on what we can control by executing our strategy to drive profitable growth and positioning G-III to capture market share throughout this period of disruption and beyond. Based on incremental tariffs, we estimate the potential unmitigated tariff impact for fiscal 2026 to be approximately $135 million. We're actively working to reduce the impact through a combination of strategies, including continued sourcing diversification, vendor negotiations, selective retail price increases, disciplined inventory management, cost savings and operational efficiencies. Starting with sourcing and vendor negotiations. We're leveraging our scale with our long-standing suppliers to negotiate discounts to partially offset cost increases without compromising the high-quality value-driven assortments G-III is always known…

Thank you, Morris. Net sales for the first quarter ended April 30, 2025, were $584 million compared to $610 million in the same period last year, in line with our expectations. Net sales of our wholesale segment were $563 million compared to $598 million in the previous year. Net sales of our retail segment were $36 million for the quarter compared to net sales of $31 million in the previous year. Our gross margin percentage was 42.2% in the first quarter of fiscal 2026 compared to 42.5% in the previous year's first quarter. The wholesale segment's gross margin percentage was 40.4% compared to 40.9% in last year's comparable quarter. The gross profit percentage in the current year's period decreased 50 basis points due to unfavorable product mix, which was partially offset by the increased sales of our higher-margin owned brands. The gross margin percentage in our retail operations segment was 53.5% compared to 47% in the prior year's period. The gross margin in the current year saw significant improvement driven by our merchandising and execution initiatives as part of our retail segment turnaround strategy as well as strong digital sales growth of our Donna Karan products, which carry higher AURs. Non-GAAP SG&A expenses were $231 million compared to $237 million in the previous year's first quarter. The decrease in expenses to last year was primarily due to a reduced advertising expense in this quarter versus the higher spend in the prior year related to the relaunch of the Donna Karan brand and DKNY marketing campaigns. In addition, we experienced lower advertising expenses resulting from a decreased net sales of licensed product in the current period. Non-GAAP net income for the first quarter was $8.4 million or $0.19 per diluted share compared to $5.8 million or $0.12 per diluted share in…

Thank you, Neal, and thank you all for joining us today. I'm proud of our team's work this quarter, and I'm confident in G-III's future as a global leader in fashion. I'd also like to thank our entire organization, our many partners and all our stakeholders for their support. Operator, we're now ready to take some questions.

Our first question comes from Ashley Owens with KeyBanc Capital Markets.

So maybe just starting off, you talked about taking price increases as part of the plan and discussing some pricing power and AURs in some of your own brands. With these being newer and still more limited in distribution, is this where the focus is for some of those price increases? And maybe just more broadly, what parts of the assortment, whether it be dresses, coats, et cetera, do you see the most opportunity to take price?

Thanks for the question, Ashley. It's actually a really good one. We're getting a great level of cooperation from our retailers in adjusting pricing in targeted areas of our business. We're not arbitrarily taking a 10% increase or a 6% or a 15% increase, we're looking at the opportunities that the consumer will accept. It seems that our retailers are accepting what we suggest. We are partners in this path, and we will find price points that work effectively for ourselves, our retailers and most importantly, for the consumer. The advantage we have is we have several brands that do not have pricing pressure. We're retailing Donna Karan effectively with good margin and amazing sell-throughs at higher price points. We're positioned differently than with Calvin and Tommy Hilfiger. There's no real history. And if there is, it relates to designer when Donna Karan in her peak produced product dresses that were $1,000 or $1,500. So when a consumer walks in to see a Donna Karan dress or a sportswear or a sweater, they say, "Oh my God", that what value this really is. And with that, we've taken a different approach. We've taken the iconic and dresses and sportswear and pretty much the entire collection that Donna had created and adjusted the fabrics, but kept the trends actual and we're getting amazing attention for it and great sell-throughs. So not very difficult to raise our price points. With Karl Lagerfeld, similar form. Karl's got a unique identity, European without distribution or very little distribution in the off-price channel. So the comparatives in the retailers that we're selling to are very reasonable and the brand has amazing pricing power. Again, that has a lot to do -- mostly to do with how we create product and how we keep quality and…

That's great. Yes. No, no, super helpful. Maybe just one really quickly, too, on the guide with the relaunch -- or with the postpone of Sonia, anything there that was factored into the guide for that? And then additionally, too, just regards to the order book, what you are doing for demand planning when looking at the second half? Any pulling back on supply with potential for less consumer demand if it does slow down?

So as it relates to Sonia Rykiel, we worked hard at developing an amazing collection of product. We sold into the stores that we needed to in Europe. It was accepted. The price points were accepted. Great deal of difficulty in launching a brand with production in small units, sourcing the appropriate factories that are, in a sense, doing us a favor to launch. We were always working short on margin to get the product produced and placed. And our view was it was not going to be a very big business. It would lose some money, and we would position the brand for the future. As tariffs became out of hand and the process became complicated, production kind of lost its taste for doing us a favor and produce small units. So we decided the best thing to do was pack up and come back another day. And we disappointed some retailers, mostly in Europe. And we disbanded the showroom, the people that were staffed to run it and design is now focused on another area of our business. So not a costly event. It would have been far more costly to go forward for the year, and we felt this was not the year to launch a brand and lose money doing it. So it was a decision with my founding board at G-III, and we decided that we'll be out.

Ashley, with respect to the order book and your question on supply challenges, the -- look, we're certainly anticipating acceleration in the second half. We've got launches that come on in the second half. If you look at what we did last year, you saw we had a very strong second half as opposed to the first. These businesses have bigger seasons, the ones we launched in the fall versus the spring period of time. I would say that the -- certainly, ordering demand is slightly slower this year than where we were last year, but we remain cautiously optimistic that the consumer will be there for us. They'll be there for the brands we're delivering. We've got a lot of newness going out there. And that's really what gives us confidence again in the second half order book. In terms of supply, we're always prudent with respect to our inventory purchases, and we buy in accordance with things that we'll be comfortable with should demand gets soft on us. So it's something that we've been managing throughout our entire careers here and something that we do well.

Our next question comes from Mauricio Serna with UBS.

Just first, could you talk about roughly how much is this timing shift that you mentioned in the Q2 guide impacting the revenue outlook? And does that all shift to Q3? Or is it actually like spread out in Q2, Q3? And then just on tariffs, like any sense of like how much you expect to mitigate out of the $135 million? And I guess, looking into like should we assume a similar unmitigated impact on the first half of next year? Or maybe there's like some acceleration on initiatives or just seasonality implies like the less impact?

Thanks, Mauricio. Yes. So with respect to your first question in terms of shifting, it's probably easier for us to identify the shifts that are related to the supply chain issues we've had. When we had a 145% tariff rate in China, essentially, we were shut down and shut out of many programs. We ceased in some cases, significant amounts of production and then really have to restart that when subsequently those tariffs became more manageable for us. So that's something that we probably feel that if we were to look at the downdraft that we've got in the second quarter, it probably represents about half of the decrease, something in the magnitude of, I'd say, $30 million of falloff that's just supply chain related for us in the second quarter. So that would leave the balance really related to sales and sales shifts, that shift is both Q3 and Q4. We see programs that will be going both -- into both quarters.

So part of it is really due also to a bankruptcy in Canada for Hudson Bay. We anticipated a fair amount of business for Q2 for Hudson Bay. We felt that they would be in a Chapter 11 position. We factored in a budget for their business. We had orders on hand. And at the end of the day, they went into liquidation mode. So that was a fair amount of it. And part of it, as I described, the shutdown of Sonia Rykiel affected us to some degree as well.

And Mauricio, with respect to the tariff question, as we indicated in our prepared remarks, we're following several avenues to mitigate the increased tariff costs. So by way of additional color, let me give you some insight a little bit into the process. As a wholesaler, our product lines for our fall and holiday season were -- largely went to the market and was sold to our customers prior to the new incremental tariffs. So we have been continuing to discuss with our retail partners the ability to selectively lift prices on those lines. This process is currently going on, and the ultimate results from this process is still uncertain. With respect to our spring lines, those will come to market in the summer. And for those lines, we will be able to incorporate our new higher costs with our upfront selling. With respect to conversations with our sourcing vendors, we've made great progress with realigning our sourcing locations and striking compromises on our prices that are also originated prior to the incremental tariffs. We've not completed our purchasing for the year, and there's certainly some degree of uncertainty with respect to the costing and the location for those goods. But all of those processes cover our largest portion of the year and are currently very fluid. And accordingly, we did not feel comfortable specifying what the impact on our bottom line results would be.

Mauricio, you have to realize that we have pricing power within our brands, which I tried to describe earlier. We believe that we're not immune, but I think we're in good shape to manage price increases with consumer acceptance on a big percentage of our business and the pieces that are essential, we're the most competitive resource in our universe of competition. So I would say the -- as we raise our prices, our competition has to raise their prices. So good chance that the scale of our business grows as we are, in many cases, reopening price point for our department stores. So they would trade down and come to us and give up a resource that couldn't manage pricing the way we can.

And finally, just to be clear on the spring and into next year, again, when we see our cost impact upfront, we're able to engineer that into our pricing and work back to the margins that we need to run the business.

Got it. And just a quick follow-up. You maintained the revenue guide despite facing like the situation with Sonia Rykiel postponing the launch. So is it fair to assume that you expect -- you think like relative to where you were in March, maybe like the outperformance that you've seen in the own brands is allowing you to maintain the guide despite this headwind? Or what is driving you -- what is allowing you to maintain the sales guide despite not postponing this launch?

No, that's right. We see other strength in the rest of the portfolio.

Okay. Good luck.

Thank you. Thanks for your questions, Mauricio.

And our last question comes from Paul Kearney with Barclays.

So just on the inventory, can you maybe speak to how you're anticipating ending 2Q inventory levels, just given you said that you were kind of shut out production when China tariffs were 145% and then you're restarting it. So where do you think inventory lands for you in 2Q and then through the year? And then I have a follow-up.

Yes. Look, inventory has been lean. We've been chasing -- we've been cleaner in terms of what sits in our warehouses. But we continue to think that our inventory levels will move more consistent with the sales growth that we've got in the future periods.

Paul, this is not a normal period of time. There's still uncertainty as to where tariffs wind up. There's a date that politically has been given out that tariffs will be reviewed. And we are accelerating everything that we can. So there may be a shift that is not a normal shift. We're moving out as much product not to get stuck in a windfall potential, not that I believe it occurs, but we want to be out of the way if there's another storm.

Okay. My second one...

So you can't -- it's difficult -- I'm sorry.

No, go ahead.

Now it's difficult at this time to really run a stable business with all the factors that surround us. But it's all good as far as inventory levels. I'd say if we wind up and -- with tallage of inventory that we're able to receive in Q2 that looks like it's a negative, it's an absolute positive. We've gotten out of the way and we own the inventory.

Okay. And my second one is -- and fully understand you're speaking to the pricing power of some of your own brands. But when we look in the industry and we hear others speaking to consumer uncertainty driving traffic headwinds, we're starting to see inventory build throughout the industry. I guess, what are you expecting for promotions for the remainder of the year? And how will you navigate that?

We're not feeling very much pressure on promotions. Our products, as I described, you deliver quality products, you deliver it on time, you're positioned well, you manage -- you care and manage your customers. In many cases, you win. And this isn't only for our brands. This includes our exiting brands. Now Tommy and Calvin, our sales are very good. They're performing incredibly well in the department stores that they occupy space. There's some pressure in how we're managing the business as we're exiting it but the product is selling well. There's a high demand for it. And in many cases, our -- I would tell you that our inventory levels right now are a little bit too low for the demand that -- for the product that we're creating and selling through.

Okay.

Thank you. Thank you, and thank you all for your interest in our company and your patience, tolerance and support, and I wish you a great weekend.

Thank you for your participation. You may now disconnect. Everyone, have a great day.