3 Concerns Wells Fargo Has With G-III Apparel Group

G-III Apparel Group, Ltd. GIII has lost around half of its value amid tariff concerns and investors should avoid buying the stock even if it looks "optically inexpensive," according to Wells Fargo.

The Analyst

Wells Fargo analyst Matthew Gulmi initiated coverage of G-III with a Market Perform rating and $26 price target.

The Thesis

G-III's stock has been hard hit after the List 3 tariffs came online last September and aren't particularly expensive at current levels of 8.4 times P/E and 6.1 times next 12 months EBITDA, Gulmi wrote in a note. The company also boasts a large portfolio of licensed, owned and private label brands that enjoy worldwide popularity.

However, Gulmi said the bullish case for G-III's stock is hard to justify at current levels for three key reasons.

First, while tariffs are likely to impact the majority of apparel companies, G-III has the highest amount of exposure to China sourcing at 61% versus its peers at a high-teens rate.

Second, the company's domestic wholesale market accounts for more than 70% of total revenue and is showing signs of slowdown. In fact, the segment is showing an "increasingly worrisome outlook" from slower traffic trends and rising inventory levels.

Third, the retail business is projected to post a loss for the fourth consecutive year and management is starting to show a pattern of revising loss projections.

"The majority of these issues appear to be reflected in today's share price but our concern is these headwinds could continue to weigh on both fundamentals and sentiment in the near term," the analyst wrote in the note.

Benzinga's Take

The company's overexposure to China outweighs any brand strength and the stock doesn't offer a dividend.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links

Bank of America: G-III Has A Tariff Problem

New Trade Coalition Seeks Stronger Congressional Tariff Control