Analysts can’t decide if Donna Karan will be an earnings driver for G-III Apparel

Is Donna Karan hot or not? Analysts can’t decide.

G-III Apparel Inc.   Chief Executive Morris Goldfarb said on the company’s Tuesday earnings call that the company was “satisfied” with the performance of DKNY’s line of spring dresses.

Moreover, the company launched DKNY luggage in about 200 Macy’s Inc.   stores, which takes the brand into the lifestyle category. Though the business is small now, Goldfarb said, the addition expands the customer base.

“The development of scale in our business will also be important and we’ve begun to see this benefit as our net sales of DKNY and Donna Karan product doubled in the quarter,” Goldfarb said on the call, according to a FactSet transcript.

KeyBanc Capital Markets analysts led by Edward Yruma say the iconic fashion brand will be a “long-term earnings driver” following first-quarter earnings that beat expectations.

“We view the expected ramp in top-line and profitability at Donna Karan favorably and remain constructive on the acquisition long term, particularly given the more attractive margin structure that the owned nature provides,” KeyBanc wrote.

KeyBanc rates G-III shares overweight and raised its price target to $58 from $45.

Investors were equally enthusiastic about the earnings result with shares closing up nearly 11% on Tuesday.

Still, Stifel isn’t quite so sure.

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“Structural headwinds to department store and outlet centers in combination with uncertain acceptance of the Donna Karan and DKNY brands keep us valuation sensitive,” analysts led by Jim Duffy wrote in a note.

Analysts went on to highlight the “high integration risk” from the Donna Karan acquisition, with is expected to be dilutive through calendar year 2018.

There have been skeptics of the Donna Karan brand ever since the $650 million deal was announced in July 2016.

Since that time, there have been developments both positive and negative, including a licensing agreement with PVH Corp.   for DKNY menswear and the chapter 11 filing from Bon-Ton Stores Inc.

Bon-Ton announced in April that it will liquidate and shutter more than 250 stores, putting 24,000 out of work.

For Cowen, this is noteworthy. Analysts rate G-III Apparel outperform based on “the substantial earnings power of the core business on a standalone basis, excluding Bon-Ton liquidation impact ($100 million in sales/30 cents in EPS dilution) and Donna Karan.”

The Calvin Klein and Tommy Hilfiger businesses were up double digits, according to G-III’s Goldfarb, who said those two brands along with DKNY, Donna Karan and Karl Lagerfeld “are the cornerstone brands of our portfolio.”

Other brands in the portfolio include Kenneth Cole, Cole Haan and Ivanka Trump.

Stifel raised its price target to $54 from $49.

G-III Apparel shares are up more than 111% over the last 12 months, far outpacing the S&P 500 index which is up 14% for the period.