Ladies and gentlemen, thank you for standing by. Welcome to G-III Apparel Group Third Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Neal Nackman, Chief Financial Officer. Neal, 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.

Thank you, Neal, and thank you, everyone, for joining us. We delivered strong profitability in the third quarter despite the impacts of tariffs, with earnings exceeding the high end of our guidance range. This was driven by the strength of our go-forward portfolio, particularly our owned brands, as well as a healthy mix of full-price sales and our mitigation efforts against tariffs. Our solid year-to-date performance highlights G-III's ability to effectively manage through a dynamic and often challenging marketplace. Since PVH's unexpected decision to end our long-standing licensing partnership, we've demonstrated significant progress in transforming our business model and accelerating our longer-term strategies. At its peak, the Calvin Klein and Tommy Hilfiger brands represented over $1.5 billion in annual net wholesale sales. And this year, these brands are expected to generate approximately $800 million. As previously mentioned, the PVH sales decline accelerated quicker than originally anticipated. Despite this decline, our teams replaced more than 70% of the lost sales volume through organic growth of our go-forward owned and licensed portfolio. Our newer brands, like Donna Karan, have enabled us to command greater pricing power while maintaining healthy price elasticity. Our balance sheet during this period has strengthened, ending the quarter with a net cash position of $174 million. We remain keenly focused on executing our strategic priorities, making disciplined brand investments and positioning our portfolio to capture market share and long-term growth. Our third quarter performance reflects healthy consumer demand for our brands. Seasonal weather boosted our cold weather categories, which saw a nice pickup in sell-throughs across brands and channels as we move through the quarter. Within wholesale, we saw meaningful gains in women's outerwear with full price retail sales up nearly 20%. Our marketing investments have driven a significant increase in consumer engagement as seen in the uptick…

Thank you, Morris. Net sales for the third quarter ended October 31, 2025, were $989 million compared to $1.09 billion in the same period last year, generally in line with our expectations. Net sales of our wholesale segment were $977 million compared to $1.07 billion last year. The decline in sales compared to the prior year is primarily a result of lower sales from Calvin Klein and Tommy Hilfiger license businesses, due largely to several expired licenses, specifically Calvin Klein jeans and sportswear, which we exited at the end of last year. Net sales of our retail segment were $46 million for the quarter compared to net sales of $42 million in the prior year despite operating less stores. The increase was driven by solid comp sales increases across our North American DKNY and Karl Lagerfeld Paris stores as well as strong sales growth on our Donna Karan website. Gross margin was 38.6% in the third quarter of fiscal 2026 compared to 39.8% in the previous year's third quarter. The wholesale segment's gross margin was 36.7% compared to 38.4% in last year's comparable quarter. Gross margin declined 170 basis points this year compared to last year as a result of the impact of tariffs. Gross margins were better than our expectations, driven by a stronger mix of full price sales. Gross margin in our retail segment was 50.8%, down from 52.3% in the prior year. This decline primarily reflects the liquidation of the G.H. Bass branded product which is transitioning to a license arrangement with the Aldo Group beginning January 2026. Non-GAAP SG&A expenses were similar to the prior year at $258 million compared to $259 million in the previous year. We continue to stay vigilant with our expense management. We have rightsized our warehouse space and continue to prudently…

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 and many partners and all our stakeholders for their support. Operator, we're now ready to take some questions.

[Operator Instructions] And our first question comes from Bob Drbul with BTIG.

I guess can we unpack the gross margin performance a bit more? When you look at the results and you look at the performance and the upside to it, can you just give us some more color around how you did that, sort of the various buckets? And then I guess when you think about the unmitigated $65 million for this year, when you look at next year in gross margin, do you believe you'll be able to fully mitigate the tariff situation? And I guess just be very curious to hear about pricing.

Thanks, Bob. The -- look, I guess the best way to help frame this is I think if you went back to our expectations at the beginning of the year, we would have expected pre-tariffs to have been up somewhere around 50 basis points in terms of gross margin percentage. And that's, again, driven by what we expect will be continued improvement of the mix of our own brands and higher gross margins. So now if you play back and extract the impact of tariffs, we're probably expecting to be down about 200 basis points, which comes awfully close to about the $65 million impact that we've been referring to. The majority of that gross margin hit for us now looks like it's going to be in the fourth quarter, but we took a sizable hit for that in the third quarter as well. One of the reasons that we were better than we had expected for the third quarter gross margins is we did extremely well in the full price selling and had -- and really didn't want to take advantage of heavy discounting in the off-price market. So we probably left some of those sales on the table at the moment. The inventory levels are in good shape. We didn't feel we need to push that out at all. I think in terms of the last part of your question with respect to getting to where we go on gross margins, early to say if we'll capture all. But certainly going into every market week that we'll have prospectively, we're going to know our costs as opposed to this past year, really not knowing the tariff cost that we have to put into our product. So we'll know that upfront. And our intent will be to put that into price and achieve normal margins for us, which again should reflect higher margins on the owned businesses, weaker margins in the licensed portfolio and overall a mix that continues to show a higher gross margin going forward.

Bob, we've raised our prices to the level that we believe the consumer will expect and accept. And it's working. There are a couple of areas that we need to make some adjustments. We're seeing a little discontent in a couple of areas, and we're adjusting those prices. So we'll source more efficiently. We'll -- as Neal said, our own brands are more productive. If you look at the -- we just stated in our peak years, we did approximately $1.5 billion with PVH brands that we paid a royalty and advertising charges for it. So we were out of pocket for royalties for north of $150 million on a reasonable year. That money stays in our company for marketing, for margin enhancements and for building, let's say, better product if needed, as needed. So we have opportunities that we did not have before. We also have with our own brands, a direct-to-consumer possibility that we never had with licensed with PVH, we were -- we never had a site that we could market through. And we never had global distribution. Our own brands afford us the ability of direct-to-consumer, which in itself is better margin business. And as we get it to scale, it's going to make a difference in our company. And the other piece is, for the first time in over a decade, we're seeing daylight in our own bricks model. We're very close to breakeven, and there's a slim chance we break even or make a small profit this year. But I think we have the formula right, and we're about ready to grow that sector of our -- so opportunities for margin enhancements are absolutely there. We're launching a more important men's initiative. We've hired talent to help us with the growth of men's and new initiatives. So it's all looking good. It's not a walk in a park, replacing half of your top line in a short period of time is no small feat with the economics we're faced with, with the tariffs that are thrown at us and all the factors that relate to how we do a business. But not want to complain. This is what we're challenged to do, and this is what we will do. So we're highly confident that we can achieve what we say we can.

Great. And if I could just ask a follow-up. Just as you look at next year, I think you talked about the PVH license business being $400 million, and I think you said margins would be -- gross margins would be up next year. Any other sort of preliminary thoughts around the top line or the bottom line goals that you're thinking about as you look to next year?

We've got a whole bunch of thoughts, quite honestly, and we're working toward executing some of them, which are possible. That might be an acquisition. It might be another license. It might be distribution through another channel. Too early to bring them to our investor group. It's all work in progress. We are not sitting by and bringing our business down to a nonproductive scale. But that said, there is no rush. We have a strong balance sheet, as you see. We're not desperate to sign on another license or acquisition. As we find it, we'll execute it. And for the moment, we're cautiously looking at the right synergistic action that we're likely to find in the coming months.

And our next question will come from Ashley Owens with KeyBanc.

Maybe just to follow up on PVH really quickly. I know you said it's now expected to come down to about $400 million next year. So effectively, another halving of the business declines accelerating quicker than you initially expected. Just be curious how that reshapes the mix and the residual drag into next year. And from your perspective, does this accelerate the time line for reaching a cleaner base? I think you'll still have another chunk of roll-offs at the end of 2026. So would be curious on your thoughts here.

So the thoughts are really kind of mixed. We're not in control of our own destiny. We have partners. On one side, we have less than a great relationship with PVH. We're at the mercy of where the retailer wants to take our business and their business. Fortunately, for us, we're outperforming expectations with our own brands. And if you track PVH's performance with their own brands, it appears from where I sit, they're not achieving what their goals were on taking in their own brands and producing them and servicing the marketplace. They highlighted the fact that their business in North America is 2/3 underwear. Well, God bless them, let them produce underwear, and we're in the fashion business. So the lanes that we created for fashion with PVH's brands, I believe, are open to ourselves and other fashion providers that they are not going to fill. So the opportunity to expand our own brands or newly acquired or licensed brands is there, I believe, because of PVH's inability to execute on what they thought they would.

Okay. Got it. Maybe just quickly then on owned brands, especially like Donna Karan, just given the information you've provided us, I think you said up 40% this year, but still early in the broader reset that you executed. Would just be curious as to what the priority levers to keep that momentum going into next year are and where the biggest opportunity is to scale from here?

Well, we've achieved -- I don't want to say perfection, but the launch was great. The -- when you launch a brand, you find flaws in what you've created and you go on, you improve. And every quarter, you get margin enhancements, you get better product, you get customers that have tried your product and become repeat customers. What's beautiful about Donna Karan is we're finding even on our digital side that, as I said, we can track our own today. We're finding over 20% of our customers is -- are return customers. So they're satisfied customers that are supporting the brand not only in a category that they might have bought, but now they'll expand and say where their first acquisition might have been a dress, they'll say, wow, it came in great, fit. I got lots of compliments on it. I'm buying a handbag. And we're getting lots of that. The strength of the business overpoweringly for the moment is the dress side. We have a dress business that is not only retailing well, but it's retailing well at a much higher price point than our other brands, and that would be Tommy Hilfiger, Calvin Klein, DKNY, Karl Lagerfeld, Donna Karan is at a premium price point turning as well as the lower price point brands that we're marketing. So we're finding opportunities in consumer acceptance. And as I stated in the script, we've also expanded distribution to pretty good penetration in Dillard's, Nordstrom's, Bloomingdale's, Saks, Neimans, so we're getting a healthier penetration of, call it, more premium department stores.

And the next question comes from Mauricio Serna with UBS.

Yes, I would like to get -- if you could provide a little bit more detail on what has been the performance from the other parts of your business. You've had several licenses that you're lapping the launches this year. Maybe could you talk a little bit about Nautica? And any initial thoughts about what you've seen with Nike and BCBG, that will be very helpful.

So thank you, Mauricio. I'll start with Nautica. We signed a license with ABG for Nautica as we found one might say surprisingly that PVH was taking back Tommy Hilfiger. So we needed a brand that was close in DNA to Tommy. And Nautica is an American spirited brand and colors of Nautica are similar. They're red, white and blue. And we thought as we were exiting categories with Tommy through our PVH license, as we vacated a classification of product, we would be able to market our newly licensed Nautica brand. So we're doing exactly that. It's growing nicely. It's not easy finding the appropriate space for it. But as it shipped, it's retailing well and the scale of it is beyond what we expected. So we're happy with Nautica. We had a unique opportunity to invest in Halston that gives us long-term ability to own the brand, and we're carefully marketing the brand in the right venues. I would not say that was a major success on its first effort. Second effort a little bit better, and our third delivery appears to be really well accepted. We'll be in the middle of shipping it soon. We're excited by what we see, and we believe there's an opportunity there. It's not nothing that I would point to of scale today, but it does have a $250 million to $300 million opportunity in our portfolio. So it merits the actions that we're taking. I can't give you an income statement on that area just yet. I can tell you that it does cost money to build brands. It does cost money to launch brands. And when you make the right decisions, you prosper after the first couple of years of spending. But it is a capital-light means of growing your…

Yes, yes, definitely was very helpful. If I could just have a quick follow-up for -- on the gross margin. Maybe just looking at the guidance that you gave, I think it implies for fourth quarter like roughly a little bit over 400 basis points margin contraction. As we think about spring '26 and the initiatives that you're doing on pricing and so forth, should we expect like a pressure more aligned with Q3? Or I would suppose sequentially better than Q4, but just thinking about whether it could be closer to Q3 or still like meaningful pressure.

Yes. Without getting into the specifics of the quarters for next year, I think, Mauricio, if you're interested generally, where we got impacted by tariffs was a little bit in the second quarter, more significantly in the third quarter and the most in the fourth quarter. So essentially, if you reverse those, that's where we expect to get the pickups into next year.

And the last question comes from Dana Telsey with Telsey Advisory.

Morris, as you think about the wholesale channel of distribution, how have the order trends been changing lately, particularly for your own brands like the Donna Karan and the Karl Lagerfeld? And then, Neal, given the gross margin, excluding the tariff, the complexion coming from your own brands, certainly, what I've been seeing in the stores is the good sell-through of Donna Karan and Karl and have the -- whether it's extended sizing, whether it's handbags, the improvement in retail, are any of these potential additive catalysts that are incremental for 2026 and going forward?

Thank you, Dana. The order trends, sometimes you can almost feel it. You feel it in the air. If you walk outside and it's cold, trends are going to be better this time of the year. So I would tell you, we had a few surprises. As you see, our inventory levels are relatively low. There's a different percentage of off-price to regular retail, full-price retail that we have today. So demand was significantly higher at the full-price channel for us this year than most years. And if you shop the stores, we're very proud of the way our inventory looks -- the retailers that chased product are prospering. The highlights for us were the coat area and the dress area, and it's not just one brand, it's across the broad. All of our brands are doing well. The sell-throughs are higher than they've been historically. So it's all said with all of what's been thrown at us, I'd say we had an excellent year and still a little time to go, but we're happy with the consumer. We're happy with our retail partners. And our staff has done an amazing job of managing during this period. I boast about it regularly. So if I've said it one too many times here, I apologize, but it's a great team of people that step up when needed, and this is a period of time that stepping up is essential. We've all done it. And thank you, team, if you're listening. And you had another follow-up on that one on this question that I missed, Dana. Did I?

It's about -- when you think about next year, extended sizing, what you've done with Weekend, what you've done with handbags, what you've done with own retail, how do you think of the incrementality of that of your own brands and the opportunity for contribution, whether to top line or to margin?

Well, pretty much all -- if you look at the new-to-market brands, and I would consider Donna Karan new-to-market, it's not even all the new elements or new classifications that we bring. It's the penetration of the old. It's -- you have a period of time which is proof of -- call it, proof of concept. The dresses have to sell before you get door expansion and penetration within the doors that you've had. So we're in a good mode. All our initiatives with Donna Karan work. So I'll tell you, our dress business will grow. Our sportswear business will grow. Our handbag business will grow. Our footwear business will grow. So there's -- and the Weekend, which we just shipped, we're very excited about, and we believe that the brand will be a shining star within the retail world. With that, we also have a greater penetration internationally, and we haven't touched international for Donna Karan yet. So we're about to. We're testing some Donna Karan product in the European market. But we're cautiously distributing it and carefully distributing it into a full-price channel distribution. So that's all working. And with that, Karl Lagerfeld, the same way. Karl Lagerfeld has grown somewhat dramatically this year. we have a greater concentration in calendar 2026 on growing the men's side of Karl Lagerfeld in North America. So there are -- if your question is targeted to organic growth opportunities, every one of our brands has potential to grow organically. That's what we've basically done to mitigate the PVH givebacks. So -- and there's still plenty of room where -- as I said earlier, we're not under pressure to make an acquisition. We're not under pressure to sign another license. We have these great assets that have a lot of bandwidth, a lot of ability to grow without pressures on margin. Thank you Dana. With that, I thank you all. I wish you all happy holidays, and thank you for your time and your support of our company.

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