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Factors Setting the Tone for G-III Apparel (GIII) Q2 Earnings

Zacks Equity Research

G-III Apparel Group, Ltd. GIII is scheduled to report second-quarter fiscal 2020 results on Sep 5. The company’s bottom line has significantly outperformed the Zacks Consensus Estimate in the trailing four quarters.

Let’s see how things are shaping up prior to this announcement.

Which Way Are Top & Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for earnings in the quarter under review stands at 22 cents, in line with the prior-year quarter’s reported figure. We note that the Zacks Consensus Estimate has gone down by a penny in the past 30 days. Moreover, G-III Apparel’s bottom-line history has been encouraging. The company’s first-quarter fiscal 2020 results marked its ninth consecutive quarter of earnings beat. The Zacks Consensus Estimate for revenues of $655.5 million indicates an increase of 4.9% from the year-ago quarter’s reported figure.

G-III Apparel Group, LTD. Price and EPS Surprise

G-III Apparel Group, LTD. Price and EPS Surprise

G-III Apparel Group, LTD. price-eps-surprise | G-III Apparel Group, LTD. Quote

Factors at Play

G-III Apparel is concerned about the tariff environment, which has been weighing on some of its product categories, particularly handbags. Notably, the first round of tariffs of 10% has significantly affected the handbags business. This tariff has now increased to 25%, effective from May 10. The company projects an increase of 15% in tariffs, which will result in cost increases of nearly $6 million for the rest of the fiscal. This may negatively impact its fiscal second-quarter results. Nonetheless, management is making efforts to mitigate the adverse impacts of tariffs by lowering production in China.

The company’s retail business has been dismal lately, thanks to weakness in underlying brands and store closures. During the first quarter of fiscal 2020, retail segment net sales fell 22% from the prior-year quarter’s figure. The segment witnessed sales decline across Wilsons, G.H. Bass and DKNY stores. A decrease in the number of stores operated by the company also weighed on the segment’s performance. Management is focusing on minimizing losses and rationalizing store portfolio for the segment.

G-III Apparel undertakes several strategies, including acquisitions and licensing of well-known brands, to expand product portfolio and establish itself as a diversified apparel and accessories company. The company’s outerwear business is likely to perform well in the to-b-reported quarter. Further, in a bid to improve the retail business, the company is set to introduce products, strengthen ties with retailers and rationalize its store base. Apart from these, GIII-Apparel is on track to bolster brands across channels, with launches, improved marketing strategies and enhanced consumer reach. It also plans to efficiently utilize digital and social media platforms.

With such well-chalked efforts, management now anticipates sales for the fiscal second quarter to be $660 million as compared to $625 million reported in the year-ago quarter. Moreover, adjusted earnings are expected to be 17-27 cents, the mid-point of which (22 cents) is in line with the prior-year quarter’s reported figure.

What Does the Zacks Model Say?

Our proven model does not conclusively show that G-III Apparel is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

G-III Apparel has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -10.45%. Notably, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks With Favorable Combination

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Casey's General Stores, Inc. CASY has an Earnings ESP of +8.43% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation COST has an Earnings ESP of +0.30% and a Zacks Rank #3.

lululemon athletica LULU has an Earnings ESP of +1.77% and a Zacks Rank #3.

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