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.
Consumer-facing investments increased 400 basis points for the full year, contributing to margin pressure but fueling growth.
Diluted EPS decreased 42% year-over-year, with Q4 EPS at $0.09 versus $0.64 last year.
Fiscal 2025 full year organic sales declined 8%, with nearly two-thirds of the decline from travel retail, which fell 28%.
Fourth quarter organic net sales declined 13%, with all categories down except fragrance, and travel retail as a primary driver.
Generated $1.3 billion net cash flow from operations in fiscal 2025, down from $2.4 billion prior year, impacted by lower earnings and restructuring payments.
Gross margin expanded 230 basis points to 74%, exceeding May outlook by 50 basis points despite volume deleverage.
Operating margin contracted 220 basis points to 8%, driven by sales declines and increased consumer-facing investments.
Recorded $425 million impairment charges in Q4 related to Dr.Jart+ and Too Faced due to underperformance in key markets.
Adjusted EPS was $0.41, exceeding guidance of $0.15 to $0.20, driven by sales growth, expense discipline, and tariff mitigation.
Capital expenditures decreased to $343 million from $432 million, and share repurchases totaled $151 million in the quarter, with $1.2 billion remaining authorization.
Core adjusted EBITDA was $377 million (7.5% of revenue), above guidance of 6.0% to 6.2%.
Gross margin was 39.7% of net sales, slightly below last year's 40.5%, impacted by proactive markdowns and tariffs.
Macy's Inc. reported net sales of $4.8 billion, down 2.5% year-over-year, with a 1.9% comparable sales growth, the strongest in 12 quarters.
Operating cash flow improved to $255 million year-to-date, free cash flow outflow narrowed to $13 million from $244 million last year.
SG&A expenses declined by $29 million to $1.9 billion, reflecting store closures and cost containment, partially offset by investments in growth initiatives.
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.
Adjusted earnings per share were $0.35, down from $0.85 last year, including a $0.07 discrete tax benefit.
Brand Portfolio gross margin declined 240 basis points to 40.3%, impacted by tariffs and markdown reserves.
Famous Footwear gross margin decreased 130 basis points to 43.7%, due to deeper promotions and channel mix.
Gross margin contracted by 210 basis points to 43.4%, driven by tariff-related costs, inventory reserves, and promotional activity.
Inventory increased 4.9% year over year to $693 million, with 8.6% growth in Brand Portfolio and 2% in Famous Footwear.
Operating earnings were $16 million, with operating margin at 2.4%.
Second quarter sales declined 3.6% year over year to $658.5 million, with both Brand Portfolio and Famous Footwear segments down but showing sequential improvement.
SG&A expenses increased by $1.4 million to $269.7 million, deleveraging 170 basis points as a percentage of sales.
Impact of U.S.-Switzerland Tariffs on Inventory and Supply Chain
Movado built a strong inventory position of Swiss-made watches in the U.S. in anticipation of a 39% tariff rate on Swiss imports implemented after the quarter.
Management expects a substantial portion of the year's inventory needs are already covered by the current stock, mitigating immediate supply disruptions.
Approximately $28 million of inventory was accumulated, with $16 million in the U.S., to offset tariff impacts and manage supply chain risks.
The company has taken proactive measures such as pricing adjustments and supplier negotiations to mitigate tariff effects, though some impacts will only be seen in future periods.
Movado plans to reduce inventory levels by the end of the year to more reasonable levels, aiming to offset the increased costs caused by tariffs.
Management remains optimistic that the U.S. and Switzerland will negotiate to lower tariff rates in the coming months, which could further ease supply chain pressures.
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%.
Dafinchi
