Can The Fashion Brand Abandoned By LVMH "Resurrect"?

Unlike European markets, where creativity is the core, American fashion brands are usually driven by business.

After more than a year of abandonment by LVMH, American fashion brand DKNY seems to be gradually recovering its vitality in the US market.

According to the US clothing group G-III (NASDAQ:GIII) released last night's performance data, as of the 2017 fiscal year January 31, 2018, group sales increased by 17.6% to 2 billion 810 million dollars, net profit increased 6.4% to 62 million 100 thousand U.S. dollars.

DKI's sales, including DKNY and Donna Karan, are about $258 million.

The group's fourth quarter sales increased by 18.5% to $715 million, of which $85 million was contributed by DKI.

However, due to the acquisition of Donna Karan brand and other assets impairment charges, the net loss in the fourth quarter was $542 thousand according to US GAAP.

The picture shows chairman and CEO Morris Goldfarb of G-III group.

Morris Goldfarb, chairman and chief executive officer of G-III group, said the sales of group proxy brand Calvin Klein amounted to US $1 billion, while Tommy Hilfiger created us $275 million. DKNY and Donna Karan also contributed to our performance.

In addition, DKNY will redistribute the men's wear series after three years. The first summer men's wear series is expected to be launched in stores in June this year.

It is noteworthy that the group bought DKI from LVMH in 2016 at a price of 650 million US dollars.

Although the LVMH group has never released the financial situation of its subsidiaries alone, luxury market analysts predict that DKI 2016's annual sales will be about $450 million, while the G-III group's acquisition cost is equivalent to 1.4 times its annual sales.

After the completion of the acquisition, Wall Street analysts generally believed that the paction was undoubtedly a drag on G-III, whose market capitalization was still less than US $2 billion. Then the stock price of the latter declined along with its profits, and recorded its lowest value in four years last 5.

Morris Goldfarb said earlier that after a strategic adjustment, the sales of DKNY will reach US $1 billion in the next three to four years, while the sales of Donna Karan will reach US $500 million in five years. However, considering the negative impact of subsequent acquisition costs on business, this means that the sales volume created by DKI in the past three years is still a question.

In 2001, LVMH acquired all the outstanding shares of DKI with us $243 million.

With the founder of Donna Karan quit in 2015 DKI, LVMH spent many resources to restart the brand. After lifting a number of business license agreements, it invited Public School two designers Dao-Yi Chow and Maxwell Osborn to remodel the brand around DKNY.

The two person cooperation series has brought a good reputation, but some analysts pointed out that the DKNY Jeans and DKNY C two product lines caused a loss of 200 million US dollars during the quarter.

Lewis Alexander, a luxury goods analyst, points out that unlike the creative European market, the American fashion house is usually driven by business and tends to focus on wholesale business.

Founded in 1989, G-III group is a professional distributor of clothing and accessories in the United States, covering clothing wholesale and retail.

The group's business is divided into two parts, including self owned and acquired brand Vilebrequin, Marc New York, Bass, Marvin Richards, G.H. Bass and so on. At the same time, it has some authorized businesses such as Guess, Calvin, New, and New.

In fact, G-III group has over 10 years' experience in acquiring the same industry brand.

Since 2005, it has acquired apparel brands Marvin Richards, Winlit, Jessica Howard and Eliza J. In order to enter women's sportswear category, the group has contributed to buy the permission of sportswear.

Seeking alpha, an investment organization, said the success of the G-III group's business model stems from the establishment of a broad brand matrix in the retail industry and the promotion of growth through acquisition expansion.

With the establishment of a retail network for many years, G-III Group believes that it has the ability to successfully revive the brand.

However, after being bought by G-III group, Morris Goldfarb failed to retain designers Maxwell Osbourne and Dao-Yi, and the two decided to focus on developing their personal brand Public School.

The two brands of DKNY and Donna Karan are currently in charge of the G-III group's internal design team. The team will redefine DKNY and Donna Karan on the basis of preserving the characteristics of Donna Karan designers as much as possible.

In order to stop the loss as soon as possible, the group at the same time decided to reduce the overall price of general garment retail prices, and the Donna Karan pricing will be lower than the previous attribution of LVMH group pricing, but the price will still be higher than the DKNY.

In terms of sales channels, in March last year, G-III group sold Donna Karan and DKNY's women's clothing licensing agency to Messi general store, and signed a licensing agreement with the Calvin Klein parent company PVH group in the United States and Canada.

In August of the same year, G-III group turned its attention to the Asian market with more potential for growth. Its earlier announcement announced the establishment of a joint venture with Amlon Capital, a private equity fund founded by Tommy Hilfiger former executive Fred Gehring, to jointly operate its brand DKNY and Donna Karan in its business in China.

Up to now, DKI has contributed $45 million, $70 million 600 thousand and $85 million to group sales for three consecutive quarters, showing a trend of increasing quarterly.

However, G-III's quarterly net profit is still in a state of loss, and there is still a gap from the most brilliant time of the brand.

For the 2019 fiscal year, the Group expects sales of about $2 billion 940 million and net profit from $97 million to $102 million.

Given the depressed retail environment in the US and the negative impact of subsequent acquisition costs in the short term, Wall Street analysts remain cautious about their performance.

As of yesterday, G-III shares fell 12% to 33.1 dollars, with a market capitalization of about 1 billion 620 million dollars.