G III Apparel Group Ltd /De/ Q2 FY2026 Earnings Call

Good day. Thank you for standing by. Welcome to the G-III Apparel Group's Second Quarter Fiscal 2026 Earnings Conference Call. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Neal Nackman, the company's 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 seasons. 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 shifts, 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 businesses and staying disciplined in our inventory position based on the increased cost pressures in a 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, the 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 guidance range. Inventory levels were up 5% versus last year, reflecting our planned acceleration of inventory receipts due to tariffs. We remain in a strong financial position ending the quarter in a net cash position of $286 million after repurchasing $25 million in shares this past quarter, compared to last year's net neutral cash position. Turning to our strategic priorities. We're actively working to maximize the full potential of our globally recognized brands. To drive growth, we've built a robust corporate foundation anchored by an experienced leadership team, world-class merchant capabilities, strength across lifestyle categories, a well-developed supply chain, and long-term relationships with retail partners. This foundation has enabled us to consistently launch and scale brands with speed. To support our long-term strategy, we're streamlining our go-to-market approach, including investments in technology and infrastructure. In North America, we're optimizing network capability and implementing process improvements to drive productivity and reduce costs across materials, labor, and freight. We're consolidating our warehouse network, exiting four facilities, and reducing associated staff by year-end, which is expected to generate significant savings. In parallel, we're investing in systems to support product creation all the way through to our speed to market and consumer engagement strategies. As part of our technology transformation, we're advancing digital tools such as 3D design, AI automation, and other innovations to help gain efficiencies. We're further realigning the organization as we transition our business to unlock additional savings in fiscal 2027 and beyond. Capturing the long-term potential of our owned brands is one of our top priorities. Owned brands represent an important and sustainable long-term profit driver, as they generate higher operating margins and provide an accretive licensing income stream. Our strategy centers on leveraging each brand's iconic DNA to deliver a differentiated product to a wide array of consumers in their shopping channel of choice. We are rapidly scaling each brand's full lifestyle product offering by extending existing assortments while expanding into new categories. This has enabled us to unlock accelerated growth across the wholesale channel, particularly in North America. Through our licensing partners, the brands have expanded into complementary categories such as fragrance, eyewear, and home, as well as experiential categories like hospitality, culinary, and refined leisure, all broadening consumer touch points and deepening brand affinity. We're investing in our brand's e-commerce presence. Importantly, our own brands remain highly underpenetrated internationally, presenting a significant opportunity for long-term expansion. We are continuing to invest in marketing to amplify our brand's global reach. This year, in addition to Donna Karan and DKNY, we're also investing in Karl Lagerfeld. With an always-on marketing approach, we're focused on top-tier talent with authentic brand resonance in rich content and global market activations to connect with new and existing consumers and drive conversion. This will come to life through local influencer programs, pop-up experiences, and in-store events, all designed to bring our brands closer to the consumer. We see substantial potential across all growth avenues, including product, channel, categories, and geographies. We're confident in our ability to scale each of our own brands into the largest women's fashion brands over time. I'll now review brand highlights from the second quarter. This year marks four decades since Donna Karan revolutionized the way women dressed. The brand's unwavering spirit has transcended time, providing cross-generational women with a daily wardrobe that is effortless, central, and timeless. Our strategy centers on leveraging the brand's iconic DNA with classic silhouettes, cultured hardware, and sophisticated designs, while infusing it with fresh contemporary interpretation. Its aspirational luxury positioning allows us to establish higher price points and capture premium full-price distribution in the U.S. The brand's average unit retails and sell-throughs remain the strongest across our portfolio. As a result, Donna Karan has tapped into a whitespace opportunity, not only within our portfolio but also in the crowded marketplace. In the second quarter, the brand delivered strong results across its lifestyle offering led by continuous strength in dresses. Our accessories business is gaining traction with premium handbags commanding average unit retails upward of $500, with several styles emerging as standouts, including The Baldwin, The Glenwood, and The Amagansett. As we continue to develop the Donna Karan lifestyle, we're expanding into new and existing categories with a current focus on social occasion wear, and now entering more casual offerings through the upcoming launch of our Donna Karan weekend collection. Donnakaran.com is outperforming expectations, driven by engaging content and great product that is boosting conversion and top-line growth. Digital sales are gaining strong traction with affluent neighborhoods, which are emerging as our top-performing markets, further reinforcing the brand's aspirational luxury positioning. We're optimizing customer acquisition costs while investing in retention to drive loyalty through compelling products and a seamless shopping experience, ultimately enhancing customer lifetime value. Turning to marketing, our Fall 2025 campaign launched yesterday and directs our focus to five icons who embody the essence of the brand. The campaign, entitled Women to Women, features authentic casts that have a rich history with the brand, including Claudia Schiffer, Irina Shayk, and Imaan Hammam, among others. The fall media plan will roll out across key U.S. markets with outdoor placements, robust digital and social programming, and high-caliber VIP social partnerships to maintain brand aspiration and relevance. In its first 24 hours, the campaign has already exceeded our expectations. Looking ahead to the second half of the year, we look forward to the soft launch of Donna Karan Weekends for Holiday 2025, with a more robust collection spanning an impressive 200 points of sale in spring 2026. The newest lifestyle line will feature relaxed sophisticated looks, complemented by the addition of casual handbag silhouettes. This brand extension opens up opportunities for further growth in traditional channels, as well as new distribution like leisure destination shops. We just signed a licensing agreement for a fashion jewelry collection with price points ranging from $125 to $350. As a reminder, Donna Karan is currently distributed in the U.S., where we expect the brand to grow over 40% this year. We see outside global growth potential in fiscal 2027 and beyond. Karl Lagerfeld is building momentum globally, delivering another quarter of strong growth led by North America. In the region, sales grew over 30%, driven by outperformance across the lifestyle offerings with margin expansion. Notably, men's sales grew approximately 20% compared to last year. For the fall, we expect to add approximately 150 domestic points of sale driven by extended assortments in suit separates, handbags, and footwear, as well as men's sportswear. Additionally, the North American retail business saw high single-digit comp increases driven by traffic and average unit retails growth. Internationally, the brand delivered broad-based growth across all channels and product categories as well as margin expansion despite a challenging macro backdrop. The wholesale business has accelerated, supported by curated product assortments to better deliver core essentials. We've also seen steady growth in our digital ecosystem. A couple of years ago, we brought our karllagerfeld.com site in-house, which has facilitated the expansion of the product offerings and distribution capabilities. We are further investing in upgrading the platform to drive conversion and capture backend cost efficiencies. Turning to marketing, on August 27, we unveiled our fall/winter 2025 global brand campaign From Paris with Love, featuring cultural icon Paris Hilton. The campaign is another major investment in the brand, designed for high visibility to drive momentum across each touch point of the Karl Lagerfeld universe. Paris Hilton brings her unmistakable charisma to our collection, celebrating confidence, individuality, and attitude, qualities that reflect the irreverent spirit and sophisticated style of Karl himself. The collection highlights studio pieces, structured tailoring, and timeless accessories, with the K/Autograph handbag line at the heart of the campaign. In just one week, the campaign has already garnered over 1.5 billion impressions, driving strong engagement globally. The rollout includes high-impact activations across our key global markets, from an immersive pop-up at Galeries Lafayette in Paris to unmistakable billboards in New York's Times Square and Los Angeles' Sunset Boulevard, to major media features, branded taxis in Las Vegas, and a strong local influencer presence worldwide. Digital storytelling also plays a central role, with bold social-first activations to connect with new audiences. The momentum will build towards a high-profile Paris Fashion Week event with Paris Hilton in the center of an unforgettable late-night party, as well as store events planned for London, Berlin, Paris, and Munich during each city's fashion week. These efforts further solidify our cultural impact and global presence. We're capturing further market share in Europe and North America as well as building out our business in Asia, where today, the brand has a small presence. DKNY draws inspiration from the energy and attitude of New York, offering a modern wardrobe designed to seamlessly transition from day to night, appealing to a younger consumer seeking contemporary assortments. The brand delivered a solid second quarter, led by North America. Outerwear saw outsized growth, with sales nearly doubling. Our North American retail business experienced positive comp sales increases, driven by average unit retails growth, showing that our refreshed product is resonating. Internationally, the brand is gaining traction. In Europe, we experienced nice wholesale expansion across DKNY jeans and accessories. We're pleased with the improving sell-through trends despite the challenging consumer environment. In the Middle East, our business is mostly accessories, where we saw solid sell-throughs. This year, we will open three new DKNY mono-branded boutiques in the Middle East. We're excited about our fall marketing campaign launched September 2 with global style icon Hailey Bieber. Born in New York, Hailey has an authentic connection and affinity to the brand and comes with a highly engaged global fan base of over 72 million social followers. Rooted in the New York street style and redefined through Hailey's lens, the collection is timeless, versatile, and effortlessly cool. In just 24 hours, the campaign has already delivered an overwhelmingly positive response, garnering over 2.3 billion impressions and reaching over 22 million users on social media. As we enter the second half of the year, our expanding product assortments, including extended sizing, are well-positioned to capture incremental market share across premier North American department stores. DKNY will roll out a series of global pop-ups and activations to promote its best-selling handbags, which are expected to drive traffic and conversion. We deepened our relationship with the New York Yankees with a limited-edition collaboration featuring fashion-forward sports apparel. Drawing inspiration from the Yankees game day gear, each piece has subtle hints of embroidery, as well as DKNY and Yankee co-branding. This collaboration is an extension of DKNY's strategy to build brand visibility and connect with a broader audience in new ways, while also leveraging our well-developed sports licensing capabilities. Internationally, we're focused on brand expansion through new and existing partners across wholesale, digital, and franchise stores to increase global accessibility and awareness of the brand. We see outsized growth potential for the brand globally. Vilebrequin, possibly the world's most recognized men's swimwear brand, showed solid improvement in the second quarter with positive sales growth this summer season driven by Europe and the Caribbean. Our flagship store in Cannes, where we also opened our first-ever beach club, has become the most productive store in our fleet. Several of our other stores are breaking all-time weekly records. To celebrate the start of the summer season in style, we teamed up with Fiat to create the Fiat Topolino Vilebrequin Collection edition, which sold out. The special version of the most coveted micro car celebrates style, spontaneity, and that timeless sensation of never-ending summer by the sea, showcasing a fabulous example of the brand's lifestyle reach. Vilebrequin beach clubs further extend the brand's lifestyle offerings, seamlessly blending beach culture, elevated culinary experiences, and refined leisure. After launching our first-ever beach club in Cannes over two years ago, we've perfected the beach club concept and developed a successful license model. Through a license partner, we opened our second beach club at the St. Regis in Doha, which is doing well. This summer, a third beach club launched in Crete, bringing Riviera charm and radiant sophistication to one of the Mediterranean's most exclusive resorts, the Domes of Elounda. We have two more exciting launches in the pipeline this year in Miami and Oman. Coming out of a strong summer season, we see many more opportunities to further drive the business in summer 2026 and beyond, with significant global potential for the brand over the long term. Investing in and expanding our complementary portfolio of licensed brands continues to be a key driver of our long-term strategy. We take a thoughtful approach to partnering with brands, ensuring that each new addition complements our existing portfolio, while offering unique propositions that strengthen our business. Licensed brands are also a capital-light way to grow and leverage our powerful corporate foundation. Our Team Sports business is growing with the expanded rights for several of our major sports league licenses. This business historically limited us to just outerwear. With our newly negotiated renewals, we'll expand our offerings to include activewear and athleisure as well as kids. We have several other exciting initiatives in the pipeline for next year. Nautica, Halston, and Champion, which launched last year, delivered solid results in the second quarter. Our newest licenses for Converse and BCBG are just hitting stores, and we're excited to see the product building momentum. BCBG launched here in North America with over 300 points of sale and is doing well. Converse also accesses a differentiated consumer and distribution network where our fashion brands have little or no presence. This includes big box, sports specialty, and sporting goods stores, as well as internationally in Western Europe and through the brand's global network of Converse stores. For North America, our launch spans across a rapidly growing wholesale business in addition to existing Converse's brick-and-mortar and online stores. Internationally, we partnered with Converse throughout Europe, Latin America, and Southeast Asia, enabling us to service both Converse stores and wholesale partners in those regions. The launch is already exceeding our expectations. Looking ahead to fiscal 2027, we're proactively preparing for the expiration of several key licenses, including Calvin Klein outerwear and athleisure and Tommy Hilfiger outerwear, sportswear, and athleisure. At peak, we built Calvin Klein and Tommy Hilfiger into a $1.5 billion business in reported wholesale sales. After this year, following the expiration of the categories that I just mentioned, we expect remaining sales to represent approximately $400 million in fiscal 2027. As PVH transitions these categories to themselves or new licensees, we strongly believe this will create a meaningful product void in the market, which we see as a strategic opportunity to capture additional market share while continuing to deepen our partnerships with retailers. Our owned brands, along with our growing license portfolio, will help offset lost sales from the PVH brands. With a solid balance sheet, we're poised to unlock our global growth potential and pursue future license and acquisition opportunities aligned with our long-term growth strategy. We're focused on enhancing our omnichannel capabilities by improving our North American retail segment store operations and strengthening our digital ecosystem. In North America, we've made significant progress in our turnaround efforts. We remain on track to almost breakeven this year, eliminating approximately $10 million in operating losses. On the digital front, in the second quarter, our global digital business was up mid-single digits. As our digital business continues to expand, we're strategically investing in our team, technology, and processes to enhance and streamline our global go-to-market capabilities. We remain focused on delivering a more robust and visually compelling product catalog across our owned and third-party partner sites. By elevating the quality of imagery, descriptors, and video content, we aim to provide an enriched consumer experience that drives conversion. Our owned websites delivered strong double-digit growth this quarter, underscoring the significant value and long-term potential of the channel. This momentum further enables consumers to engage with our brand seamlessly wherever they choose to shop. In closing, we delivered solid second quarter results, as we executed on our strategic priorities. Looking ahead, we've provided fiscal 2026 guidance to reflect the current macro environment, a more cautious outlook from our retail partners that affected most of our portfolio, especially Calvin Klein and Tommy Hilfiger ahead of the transition, as well as the impact of tariffs on our top and bottom lines. We now expect net sales of approximately $3.02 billion and non-GAAP diluted earnings per share between $2.55 and $2.75. With a clear strategic path, we're confident in our ability to unlock the full potential of our go-forward portfolio of globally recognized brands while successfully navigating a difficult environment. Our strong balance sheet and dynamic business model provide flexibility to invest in our brands and pursue strategic opportunities. We will also consider opportunistically returning capital to our shareholders through stock repurchases. I'm incredibly excited about the transformation journey we're on, driven by our commitment to delivering long-term growth and shareholder value. I'll now pass the call to Neal, who will walk through the financial results for the second quarter and provide guidance for the third and full year 2026.

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 by 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 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 of inventory receipts, as previously mentioned. Non-GAAP net income for the second quarter was $11 million, or $0.25 per diluted share, compared to $24 million, or $0.52 per diluted share, in the previous year. The impact of lower sales and additional tariff costs were the primary drivers in our reduced profitability. Turning to the balance sheet, inventories are in excellent shape at $640 million at the end of the quarter, increasing 5% from last year's $610 million. We remain in a strong financial position, ending the quarter in a net cash position of $286 million after repurchasing $25 million worth of shares this past quarter, compared to last year's net neutral cash position. Our total availability remains very strong at approximately $830 million. Our financial strength provides us flexibility to invest in our business and other strategic opportunities to drive future growth. Turning to guidance, we issued updated guidance this morning for fiscal 2026, which reflects a more cautious outlook resulting from both the retail landscape and consumer environment as well as the impact of tariffs on our top and bottom lines. We now expect fiscal year 2026 net sales of approximately $3.02 billion, a decrease of approximately 5% from the previous year, driven by first, the expiration of our Calvin Klein jeans and sportswear licenses as of December 31, 2024, which contributed approximately $175 million in sales in the previous full year; second, the cautious stance from retail partners reflected in reduced open to buys in our order book, particularly in the second half of the year as consumer impacts from tariffs become more pronounced. This affected most of our portfolio, especially Calvin Klein and Tommy Hilfiger ahead of the transition; third, we are responsibly planning our exit from the expiring Calvin Klein and Tommy Hilfiger licenses and staying disciplined in our inventory positions based on the increased cost pressures and narrow selling period. Additionally, we are foregoing sales due to the recent 50% tariff rate on India. This decision was made to protect margins. It is important to note our key owned brands, DKNY, Donna Karan, Karl Lagerfeld, and Vilebrequin continue to show healthy growth and are expected to grow at a mid-single-digit rate this year. I want to take a moment to discuss our estimated tariff impact. We expect the total incremental cost of tariffs to be approximately $155 million, up from the $135 million original estimate, and this is based on the latest tariff increases implemented for Vietnam, India, and Indonesia, among others. Through a combination of vendor participation, strategic sourcing shifts, and targeted price increases, we have successfully mitigated a portion of these costs. Our updated outlook for fiscal 2026 reflects an unmitigated impact of tariffs of approximately $75 million, with the majority expected to be incurred in the second half of the year. As a primarily North American wholesale business, we had limited flexibility to adjust pricing on inventory already sold into retailers for the upcoming seasons. As a result, in the near term, we are absorbing a larger share of these costs to remain competitive and protect market share. Looking ahead, we expect gross margins to normalize and ultimately expand, driven by the exit of lower-margin licenses, from the increased penetration of our higher-margin owned brands and from continued selective price increases. Non-GAAP net income for fiscal 2026 is expected to be between $113 million and $123 million or diluted earnings per share between $2.55 and $2.75. This compares to non-GAAP net income of $204 million or diluted earnings per share of $4.42 for fiscal 2025. Adjusted EBITDA for fiscal 2026 is expected to be between $198 million and $208 million compared to adjusted EBITDA of $325 million in fiscal 2025. Let me discuss a few points related to our guidance. As to the gross margin rate, we expect the full fiscal year 2026 gross margin rate to be down approximately 300 basis points. We expect the third quarter gross margin rate to be down slightly less than the fourth quarter, as the fourth quarter sales will have the highest penetration and impact from tariff inventory. Regarding SG&A, as we look ahead, we are actively pursuing initiatives to optimize our business model and drive cost efficiencies across our operations. We believe continued investments in our brands and infrastructure will be key to supporting our business transformation and unlocking the full potential of our portfolio. For example, we are aligning our warehouse footprint and capacity to our needs and are making the appropriate investments in technology and our corporate platform. Further, we will continue to support our brand investments through marketing, in line with last year. We expect interest expense to be approximately $5 million for the full year, benefiting from the $400 million debt repayment. We expect capital expenditures of approximately $40 million, principally driven by the build-out of shop-in-shops through our new brand launches and implementation of new technology to support our transforming business model. We are estimating a tax rate of approximately 30% for fiscal 2026. We have not anticipated any potential share repurchases in our guidance. That concludes my comments. I will now turn the call back to Morris for closing remarks.

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 is from 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 an 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, in the month of August, we had products that were 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. In areas of business where we need to be competitive, we're competitive. Where we believe there's less elasticity, we'll implement it. We've had a unique situation. Tariffs are 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 our inventory in the PVH assets. And we decided that it was not worth the risk with the pressure of price increases 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. 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 mid-stream 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 six 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, a 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 more details on the sales update for the year. Could you clarify how much of this is due to significantly lower revenues from the PVH brands compared to your future business, especially considering your expectation that the future brands will grow in the mid-single digits? This seems to suggest a slowdown compared to the double-digit growth rates from previous quarters.

Thank you for the question, Mauricio. You're correct that we are facing challenges this year primarily due to the transition of our businesses. It's not only the businesses that are changing, but the entire Calvin product line is also in a transitional phase, which is causing difficulties in the marketplace. When you factor in the tariff pressures mentioned by Morris, it creates a nearly perfect storm. We are experiencing a slowdown in both the Calvin and PVH brands, as well as in our own performance. As you noted, we expect mid-single-digit growth this year, which is a decrease from the more robust figures we've seen in the past.

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. Could you tell us how much the tariffs impacted the second quarter? Is it mainly due to the 145% tariffs on products from China? I'm trying to understand if this will actually be a positive factor in Q2 next year as we move past this challenge.

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 tariff product that flowed through in the second quarter, probably slightly more than we would have expected when we did the original forecasts.

To clarify, we were not affected by the 145% tariff; that was a temporary situation. We reacted by redirecting product to Europe, where we anticipated a potential issue. We also retained another batch of product, and as tariffs became more manageable, we brought the product in. Therefore, if the belief is that the decrease in profit was due to the 145% tariff, that is incorrect.

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 orders to buys from Calvin and Tommy?

Thank you for your question, Paul. Historically, the amount of product we source from India has been minimal, representing a low single-digit percentage of our total production. However, in the third and fourth quarters, we increased the volume of product sent to India, exceeding that low single-digit percentage. While this increase is not significant for future projections, it does impact our performance for the year. We intend to market some of this product in Europe, and if that doesn't work out, we will coordinate with our Indian partners. I can share that the topline FOB figure is around $30 million, which will influence our fourth quarter and year-end topline results if we have to forgo it. This amount is already factored in as a giveback.

And just to clarify, Paul, the $30 million is the sales impact of the Indian production.

Okay. My quick follow-up, and I think you touched on it a little, but in the past, you've mentioned strong pricing power for the right product. I'm curious, as you look to address the tariffs for next year, are you starting to see any resistance on price, either from your own brands or from your retail partners? Are we beginning to reach the limits of what is feasible 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 and price-value relationships. And for them to be comfortable that they can afford to pay increases, they need to see price increases at 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 consider the future of your brands, could you provide insight into their performance for the remainder of this year or this quarter? Additionally, Morris, can you discuss potential licensing opportunities? I believe that Converse opens up new avenues, and BCBG reflects our current situation. Looking ahead, what brand opportunities do you foresee in terms of licensing and any adjustments to your existing expectations?

Thank you for your questions. Our brands are performing very well in retail. Each time we speak, we mention our expansion into new locations. Expansion is only possible when performance is strong. Initially, when launching a new brand, we start with a limited number of stores to test. As sales increase, the number of stores grows. Currently, every retailer we work with recognizes the value of carrying Donna Karan, seeing exceptional performance compared to the inventory and store count. We are experiencing not only an increase in store count but also improved sales per store. Additionally, we are diversifying our offerings within these brands. For instance, our new Weekend line, which hasn't shipped yet, is already seeing fantastic bookings, and we anticipate it will reach nearly 300 stores for the spring launch. A soft launch is expected in about 45 days, followed by increased penetration as it becomes available. Karl Lagerfeld is seeing similar success. If you shop in department stores, you will notice strong sales of DKNY, Karl Lagerfeld, and Donna Karan, which are leading brands in that space. Recently, Macy's highlighted several brands performing well, including Donna Karan, which they have praised multiple times. We take pride in this recognition. Currently, we do not distribute outside the United States or in off-price channels, allowing us to maintain pricing power and leverage it effectively. We have just begun shipping Donna Karan products to Saks for the first time and hope this partnership will further strengthen the brand. Our retail presence for Karl Lagerfeld has been strong, and we are now looking to expand our outlet locations while carefully exploring opportunities in retail for our brands. We have no stores dedicated to Donna Karan yet, but we plan to open flagship locations soon. There is growing interest in licensing Donna Karan; our first licensed product is jewelry, which has received excellent support and takes inspiration from Donna's archives. We have great marketing and talent behind it, supported by G-III. To summarize, while Donna Karan is currently the smallest among our brands, it has significant potential. The launch has exceeded our expectations in terms of scale, and we believe it can evolve into a $1 billion brand in the next few years. This growth will enhance our margins, top line, and product diversity, making us better prepared for pricing adjustments. I apologize for the lengthy response, but I'm genuinely proud of what our organization has achieved in these challenging times, facing various obstacles including tariffs and shifts in consumer behavior. From a financial standpoint, we are in a solid position. Regarding your questions about BCBG and Converse, both are incredibly recognized brands globally. Converse is backed by Nike, and we have the opportunity to expand our reach internationally. Many of our licensees do not operate outside North America, but we do. The volume of orders is increasing, and while we've shipped limited product so far, we have excellent global distribution. We've received positive feedback on the product's appearance. I can't speak for the Converse team, but they seem more than satisfied and perhaps pleasantly surprised by how quickly we brought the product to market using approved factories for Nike. We have secured the necessary approvals, produced the product, and it's ready for delivery. I see a bright future for this brand. BCBG adds another dimension to our business as we explore contemporary offerings, helping to balance assortments in department stores. We recently shipped a substantial amount of product, and the recent sell-through rates have been outstanding. We anticipate growth in these emerging brands, which will likely gain more recognition, as we highlight the importance of our licensed business moving forward. Thank you, Dana, as always. And thank you all for your participation. And wait and see. We've got some great stuff on the horizon. I'm eager to share it with you in the coming quarters.

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