On Friday, Wells Fargo (NYSE:WFC) made adjustments to its outlook on G-III Apparel Group Ltd (NASDAQ:GIII), reducing the price target to $23 from the previous $24, while maintaining an Underweight rating on the company's shares. The decision follows G-III Apparel's financial performance in the fourth quarter, which saw revenues fall short of expectations due to subdued consumer demand and unseasonably warm weather affecting outerwear sales, which account for approximately 30% of the company's revenues.
G-III Apparel's fourth-quarter revenue was 6% below the Street's expectations. Despite the revenue shortfall, the company's gross margin (GM) rose by roughly 400 basis points, albeit slightly below the Street's projection of a 415 basis point increase. On a positive note, G-III Apparel surpassed operating margin (OM) estimates by approximately 130 basis points, attributed to better-than-expected selling, general, and administrative expenses (SG&A).
The company reported earnings per share (EPS) of $0.76, which was about 13% higher than the Street's estimate of $0.68. This outperformance was seen as G-III Apparel's effort to "control the controllables" amidst challenging market conditions. However, the firm noted that investments intended to accelerate the growth of the company's owned and newly licensed brands are expected to weigh on operating margins going forward.
The analyst from Wells Fargo also highlighted the challenges G-III Apparel faces in trying to fully compensate for the loss of licenses from PVH Corp (NYSE:PVH). Despite the company's initiatives to grow its owned and newly licensed brands, the path ahead is anticipated to be difficult. The guidance provided by G-III Apparel did not meet analysts' expectations, signaling a cautious outlook for the company's future performance.
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