Impact of Tariffs on G-III's Inventory and Margins
Management highlighted that higher-than-expected tariff costs, primarily from increased shipments from Vietnam, India, and Indonesia, impacted gross margins in Q2 2026.
The company is actively mitigating tariff pressures through vendor participation, sourcing shifts, and targeted price increases, but is currently absorbing some costs to stay competitive.
Tariff impact was estimated at approximately $75 million unmitigated, with a total incremental tariff cost of about $155 million for fiscal 2026.
The company’s strategic decision to hold and reroute product from India, where tariffs reached 50%, was aimed at protecting margins despite affecting the year-end topline.
Management expects gross margins to normalize and expand as they exit lower-margin licenses and increase penetration of owned brands.
Tariffs have influenced inventory decisions, leading to a 5% increase in inventory levels and a cautious approach to inventory buybacks.
The impact of tariffs on margins is expected to be most pronounced in the fourth quarter, with some relief anticipated in the second half of next year.
Impact of Commodity Cost Increases on Nut Prices and Inventory
The company experienced a 3.4% increase in the weighted average cost per pound of raw nuts and dried fruit, primarily due to higher commodity acquisition costs for all major tree nuts.
Inventory on hand increased by 29.5% to $58 million, as the company stockpiled raw materials in anticipation of seasonal demand and rising costs.
Despite higher costs, the company managed to offset some impact through manufacturing efficiencies and strategic sourcing, maintaining gross profit margins at 18.1%.
Management highlighted ongoing efforts to mitigate commodity price pressures through innovation, cost savings, and retail partner collaborations.
Adjusted EBITDA was negative $1.3 million, slightly worse than negative $1.1 million last year, but improved $2.7 million sequentially due to cost reductions.
Cash and equivalents ended at $48.7 million with no debt, supporting liquidity and growth initiatives.
GrowGeneration reported Q2 2025 net revenue of $41 million, exceeding guidance by $1 million but down from $53.5 million in Q2 2024 due to a smaller retail footprint and weaker B2C demand.
MMI Storage Solutions segment revenue grew 69% sequentially to $8.1 million, contributing positively to diversification.
Net loss improved to $4.8 million or negative $0.08 per share from $5.9 million or negative $0.10 per share in Q2 2024.
Operating expenses declined significantly with store and other operating expenses down 23% and SG&A down 13.4% year-over-year.
Proprietary brand sales increased to 32% of total revenue, up from 21.5% in Q2 2024, driving gross margin expansion to 28.3% from 26.9% year-over-year.
Cash and short-term investments ended at $33.5 million, down from $63.2 million a year ago, with no debt and $70.1 million available on the revolving credit facility.
Comparable store sales declined 7.1%, while direct sales fell 14.4%, with sequential monthly improvement from May (-10.4%) to July (-7%).
EBITDA fell to $4.6 million from $6.5 million last year, impacted by lower sales but partially offset by expense reductions.
Gross margin rate decreased 300 basis points to 45.2%, mainly due to a 240 basis point increase in occupancy costs and higher markdown rates.
Inventory was $78.9 million, flat year-over-year, with clearance penetration steady at 10.2%. Inventory down 28.5% compared to 2019.
Merchandise margins declined by 60 basis points, partially offset by a favorable shift from national to private brands.
Net sales for Q2 2025 were $115.5 million, down from $124.8 million in Q2 2024, driven by a 9.2% decline in comparable sales.
SG&A expenses decreased by $6.1 million year-over-year, reducing SG&A as a percentage of sales to 41.2%.
Impact of Tariffs and De Minimis Removal on Margins and Pricing Strategy
Management highlighted a $240 million mitigated impact on gross margin due to tariffs and the removal of the de minimis exemption, representing approximately 220 basis points of margin decline for 2025.
The removal of the de minimis exemption is expected to have a significant impact, accounting for about 170 basis points of the tariff-related decline.
The company is implementing strategic pricing actions and supply chain initiatives to mitigate increased tariff costs, but these will take time to fully realize benefits.
For 2026, the net impact of tariffs and de minimis removal is projected to be around $320 million, affecting operating margins.
The company is actively managing inventory placement and supply chain adjustments to offset some of the tariff-related costs.
Pricing increases are being cautiously rolled out on a small portion of the assortment, with ongoing evaluation planned.
Dafinchi
