Good day. Thank you for standing by. Welcome to the G-III Apparel Group's Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Neal Nackman, the company Chief Financial Officer. Please go ahead, sir.

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. In the second quarter, we exceeded our expectations across both net sales and earnings. Net sales benefited from retailers responding to consumer demand for newness and fashion as we transition season. Sales momentum in the quarter was driven by our go-forward portfolio, specifically our key owned brands, DKNY, Donna Karan, Karl Lagerfeld and Vilebrequin. Gross margins in the quarter were impacted by higher-than-expected tariff costs, driven primarily by a greater volume of tariff inventory shipments than initially forecasted. We're actively mitigating these pressures through a combination of vendor participation, selective sourcing shift and targeted price increases. In the near term, we're absorbing a portion of these costs to remain competitive and capture market share. Looking ahead, we anticipate gross margins will largely normalize and ultimately expand as we exit licenses, as the penetration of our owned brands increases, and as we continue to take selected price increases. As we look to the second half of the year, our retail partners are increasingly cautious on their inventory buys, in anticipation of tariff increases becoming more pronounced. Additionally, we've seen a disproportionate reduction in open to buy, specifically for the Calvin Klein and Tommy Hilfiger businesses. During the transition, we're responsibly exiting these business and staying disciplined in our inventory position based on the increased cost pressures in narrower selling period. In response to the latest tariffs, including those affecting India, we've proactively adjusted our inventory positions prioritizing margin over sales. Accordingly, fiscal 2026 guidance we provided this morning reflects all of these factors. Now let us review our second quarter fiscal 2026 financial results. Net sales for the quarter were $613 million, well ahead of our guidance. Our GAAP earnings per diluted share were $0.25, also well above the top end of our…

Thank you, Morris. Net sales for the second quarter ended July 31, 2025, were $613 million, compared to $645 million in the same period last year, well ahead of our expectations, driven by our Wholesale segment. The decline in sales compared to the prior year is primarily attributable to the exit from the Calvin Klein jeans and Sportswear License businesses. Net sales of our Wholesale segment were $590 million, compared to $620 million in the previous year. Net sales of our Retail segment were $41 million for the quarter, compared to net sales of $37 million in the previous year. This growth is a direct result of our turnaround initiatives despite the decrease in store footprint in our North American outlet business. Our gross margin percentage was 40.8% in the second quarter of fiscal 2026, compared to 42.8% in the previous year's second quarter. The Wholesale segment's gross margin percentage was 38.9%, compared to 41.2% in the previous year. The gross profit percentage in the current period decreased 230 basis points due to higher-than-expected tariff costs driven primarily by a greater volume of tariff inventory shipments in the quarter as well as an unfavorable product mix. Gross margin in our retail operations segment was 52.4%, down from 54.4% in the prior year. This decline primarily reflects the liquidation of the G.H. Bass branded product, which as previously shared this past spring is transitioning to a license arrangement with the ALDO Group beginning January 2026. Non-GAAP SG&A expenses were $226 million, compared to $229 million in the previous year. This decrease was driven by lower compensation expenses resulting from decreased profitability as well as reduced advertising expenses related to lower net sales of licensed products in the period. These decreases were partially offset by higher supply chain expenses, reflecting the acceleration…

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.

[Operator Instructions] Our first question coming from the line of Ashley Owens with KeyBanc Capital Markets.

So just to start on the gross margin, I appreciate the color there. Just anything else we should be mindful of weighing on the balance of the year. How you're approaching promotionality, just as you balance elasticity with some of these price increases, given the mixed consumer signals we're getting? And then moving into next year, I know it's early, but do you foresee further pressure in the first half of the year? Or should some of these mitigation strategies be fully in motion by then?

Thank you for your question, Ashley. On price increases, we're targeting areas of our business where it's appropriate and acceptable to raise prices. As I said in our script, a lot of what we do is -- no, maybe I didn't say it in our script, is art. We don't sell a dozen eggs. We don't sell tonnage of steel. And art, if it's done appropriately and you target your consumer, you get paid well for art, and you create demand with great art. We're doing great art. We have demand for our collections. The consumer has accepted some price increases that we've implemented at the tail end of Q2. And currently, the month of August, we had product that was elevated in price point, and there was no consumer resistance. Back-to-school is very good. The consumer is resilient. We're looking at it closely. The areas of business where we need to be competitive, we're competitive. Where we believe there's less elasticity, we'll implement it. We'll implement price increases. We have a unique situation. Tariffs are not for us and not solely the cause of margin deflation and topline dilution. You need to remember that we are exiting PVH's assets. And when tariffs are implemented, and prices need to be increased to come out alive, you modify your plan. You have retailers that are not certain about acceptance of price increases. They know there's a transition of management and supervision of the brands. And we offered our plan for PVH on the exit. We have a limited time period to dispose, or sell-through, of our inventory in the PVH assets. And we decided that it was not worth the risk with the pressure of price increase and the lack of support that we were getting on the exit of the brands. So the tariffs influenced the level of inventory we bought. And all said, we're comfortable that, as we transition out of the PVH brands and get into the coming year, we believe that it all levels out. We've got some very strong initiatives that are now being shipped into the stores, new licenses, as well as the maturity of Donna Karan and Karl Lagerfeld and DKNY for that matter. And we see growth in every one of our brands. And as I stated earlier, owned brands provide a better return on margin than licensed brands. So as a percentage of our own brands' increases, you'll see margin improvement over the coming year.

Ashley, this is Neal. With respect to the first half of next year, look, it's a little early for us to give you any kind of specific guidance. Let me give you a little bit of background in terms of what we're looking at. Certainly, we end this year -- or January is the beginning of our spring shipping. And then, of course, the first quarter will be the robust part of our spring shipping. The spring season, the latest set of tariffs really happened sort of midstream with respect to our going to market. We've been able to correct some of those prices and incorporate those, as Morris mentioned, not entirely. So we'll have a little bit of pressure. But I think, overall, the big thing for us is that if we see the tariffs coming ahead of time, before we go to market, we can appropriately price our product and get back to the kinds of margins that we expect to have and have had in the past.

Got it. Yes, that's super helpful. Maybe just one more quickly to follow up. I think, with the mix of owned and licensed, and just talking about PVH, when you last spoke to the portfolio strategy about 6 months ago, I believe it was mentioned that Calvin and Tommy were expected to represent about 25% of total sales at the end of this year. But just given the reduction in open to buys that you highlighted for some of these brands, is that still how we should be thinking about the full year mix shift? And I guess, better way to word that is the reduction there driving an acceleration in kind of a mix step down from PVH for the balance of the year?

Yes, no dramatic change in terms of percentage, pretty similar to where we've been before. We've been impacted certainly across all the brands as far as the pullback in our sales as a result of the consumer pressures and the impact of tariffs.

Our next question coming from the line of Mauricio Serna with UBS.

I wanted to ask if you could provide a little bit more detail on the sales update for the year. Maybe could you give us more -- a bit more detail like how much is that attributed to like much lower revenues from the PVH brands versus your go-forward business, particularly given the comments that you expect the go-forward brands to be up mid-single digit. It's kind of -- I guess, it kind of implies a deceleration versus like the double-digit growth rates you've seen like in previous quarters.

Yes. Thanks, Mauricio, for the question. Look, you're right on. We've actually got challenges this year, both -- first and foremost, really from the transition of the businesses. It's not just the businesses that are flowing off, but really all of the Calvin product is in a transition mode for us, and that does present some selling seasons -- selling problems into the marketplace. I think when you combine that with the tariff pressures, as Morris was mentioning before, it's nearly a perfect storm. So we've got certainly deceleration in the Calvin and PVH brands, and we've got some deceleration in our own. And you're right, the mid-single digits is what we're expecting this year, down from where we've been a little bit more robust.

We also see a little softness in some of our categories. Footwear has been soft for us. So there is an internal miss on what we projected to do in footwear. There's the confusion of exiting most of our production out of China did not help us. Moving into new factories and getting your trading partners to comply with how you produce, when you produce and the quality of what you produce is not seamless. So we were affected by transitioning from country to country as well as softness in the general consumer demand for footwear as we see it.

Got it. Just a quick follow-up on the Q2 results. Maybe could you tell us like how much was the tariff impact that you had on the second quarter? And I guess just like -- is it just like mainly because you were taking product with 145% China tariffs? Just trying to understand like how -- if this like will be actually like probably like relatively -- relative positive in Q2 next year just as you lap this headwind?

Yes, Mauricio, if I were to look at our reduction of just over 200 basis points, I would say it was probably half tariffs and half product mix. So relatively speaking, a pretty small tariff impact in the quarter, but certainly, as a percentage, it was a significant part of the falloff from the prior year. We do not have tariffs at 145% rate. Our China tariffs were at 30%. And we did receive some of that -- of the tariff product that flowed through in the second quarter, probably slightly more than we would have expected when we did the original forecasts.

To be clear, we were not impacted on the 145% tariff. That was a moment in time. We responded by rerouting product to Europe, where we marketed a potential problem. And we held in bond another batch of product, as tariffs became more realistic and we brought the product in. So if the assumption is the dilution of product -- of profit was 145% tariff, it was not.

Our next question coming from the line of Paul Kearney with Barclays.

I was wondering if you can just help size the amount of product that was coming from India. I'm just trying to gauge the impact from the foregone product post tariff from India versus the reduction in order to buys from Calvin and Tommy?

The amount -- thank you for your question, Paul. The amount of product we bring in from India historically has not been very much. It's a low single-digit percentage of our total production. This quarter, the third and fourth quarter, as we moved some product into India, is greater than the low single-digit number. But it is not impactful for the future. It is impactful for the year. We plan on taking some of the product, and again, marketing it in Europe, if we can. And if not, it will be held and dealt with, with our Indian partners. I'm happy to give you the topline FOB number. It happens to be somewhere near $30 million, which does affect our fourth quarter, our year-end topline results should we have to abandon it. And it's factored in as a giveback.

And just to clarify, Paul, the $30 million is the sales impact of the -- of India's production.

Okay. My quick follow-up, and I think you touched on it a little bit, but in the past, you've spoken to some very strong pricing power for the right product. And I'm just curious, as you look to mitigate the tariffs into next year, do you -- are you starting to see any resistance on price, whether through your own brands or through what your retail partners are saying? Are we starting to push against the limit of what is possible on price?

So we are seeing some resistance, and the resistance is not because the consumer is not willing to pay, it's basically retailers wanting to see comp prices in the field. So, for example, the off-price channel is about value, price value relationships. And for them to be comfortable that they can afford to pay increases, they need to see price increases in the department store level. They've not yet felt comfortable enough to get behind it in full force. They're buying their needs, and my belief is that there's a treasury waiting to be spent when prices are rationalized.

And our last question coming from the line of Dana Telsey with Telsey Advisory Group.

As you think about the future, which is the future of your own brands, can you expand on the performance of your own brands for the remainder of this year or this quarter -- this third quarter? And then, Morris, can you talk about the other potential license opportunities? I think Converse gets you into new places, BCBG, with obviously what we have going on now, it's a point in time. But if you think about the go forward, what do you see as the brand opportunities, both for licensing and any changes to your existing expectations?

Thanks for your questions. Our brands are retailing very well. You can tell pretty much every call, we talk about door expansion. You don't get door expansion without performing. So initially, as you launch a new brand, you get a handful of doors to test it. As sales begin to surface, the door count increases. And today, every retailer we trade with has seen the merit of carrying Donna Karan. They've seen outsized performance relative to inventory that they've carried and door count. So we're getting not only greater door count, we're getting better penetration per door. And we ourselves are expanding classifications within those brands, as I've stated before. Weekend, which is yet to be shipped, has booked incredibly well, and I believe we'll be in almost 300 doors for spring. That's not been shipped yet. So there's a soft launch coming in the next probably 45 days, and then, we get further penetrated as it retails. And with Karl Lagerfeld, basically the same way. If you -- if you're a store shopper and you do shop department stores, you'll see great penetration of DKNY, Karl Lagerfeld and Donna Karan. They're clearly leaders in the department store sector as far as penetration. You wouldn't know this, but as far as performance as well, there was a call out from Macy's on several brands. I believe there were 4 brands that Tony Spring called out as performing well. And Donna Karan again, I believe this might have been the third time he cited good performance with Donna Karan, and we're proud to hear it. We're proud to see it. And we have no distribution outside of the United States. We have no off-price distribution. It's a pure brand that has pricing power that we believe we can take advantage of.…

This concludes today's conference call. Thank you for your participation, and you may now disconnect.