Pivots made during the pandemic and the return of occasion dressing bolstered Guess Inc. Q2 results. Total net revenue for the second quarter of fiscal 2023 increased 2 percent to $642.7 million from $628.6 million in the same prior-year quarter.
Supply chain and inventory management are the backbone to the company’s latest gains. “We have strategically responded to the supply chain disruptions that we experienced last year by ordering product earlier. In addition, global supply chains are recovering, and delivery times have improved,” said Carlos Alberini, Guess Inc. CEO, during the earnings call. “As a result, we have been able to receive product early and meet the demands of our business very effectively.”
Guess closed the second quarter with inventory growth of $505 million, up 25 percent in U.S. dollars, he added. About 80 percent of this increase represents the anticipation of deliveries with roughly half of that received in its warehouses, and the other half in transit. The remaining 20 percent, he said, is due to increases in average unit costs, reflecting quality upgrades and the effect of inflation. “We are very pleased with the quality and mix of our inventory ownership and future orders to service our business well during the remainder of the year,” Alberini said.
The business is also seeing “some relief” from last year’s peak freight costs while simultaneously reducing its air freight.
“Our experience during the pandemic made it very clear that our business can benefit from increased inventory visibility, efficiencies and more effective planning and allocation processes,” Alberini said. “Accordingly, we have been investing in several new applications to upgrade our existing systems to improve information availability, productivity and data analytics. We have already implemented some of the solutions in Europe with very good results and plan to complete the rollout in North America by mid-next year. We have also re-architected our replenishment processes into stores to accelerate the delivery cycle to improve conversion and sell-throughs.”
Despite doing what it can do to control and manage business effectively, Alberini said the company anticipates softer consumer demand trends as well as currency and other macroeconomic headwinds to weigh on its future results. Guess Inc. now expects revenues for the year to grow about 1.5 percent and over 9.5 percent in constant currency dollars and it forecasts a lower than expected adjusted operating margin of 10 percent for the year.
The company, he added, is “concentrating on the things that we can control.”
Both the company’s Guess and Marciano brands are benefiting from increased consumer interest in traveling, going out and attending events. During the quarter, Alberini said the company “continued to leverage the flexibility of our brands lifestyle offering and appeal, adapting our assortments and product buys to meet our customers’ demand for their appropriate purchase occasions.”
Guess Inc. saw strength in dressier items like dresses and skirts, woven shirts and non-denim pants for both women and men, men’s blazers, and special outerwear pieces. In fact, dresses represent about one-third of Guess’ business and half of Marciano. A strong accessories business was driven by outstanding sales of women’s handbags.
“We also delivered solid results in women’s and men’s travel accessories, small leather goods, jewelry, eyewear, fragrances and watches,” he said.
Denim is holding its own as well, despite price increases related to investments in sustainability and higher quality components. Guess has been accelerating its use of organic cotton, recycled polyester, Tencel and modal fibers. In May, Guess Inc. entered a 250 million euros ($264 million) revolving credit facility through its wholly owned Swiss subsidiary, Guess Europe Sagl. The interest rate for the new facility will be subject to an annual adjustment based on the achievement of specific sustainability goals aimed at reducing greenhouse gas emissions, increasing the use of sustainably sourced materials and increasing the footprint of Guess Eco products.
“Denim has been a very strong category for both women and men,” Alberini said, adding that “we don’t see that category slowing down.”
In general, Guess Inc. have raised prices across its brands, but the executive said consumers recognize why the increases are warranted. “We have significantly improved the quality of our products across the board, including fabrics, trims, and make and we have priced every product based on its respective perceived value,” he said about the company’s elevation strategy.
While the company aims to tightening assortments, Guess Inc. has plans to develop exclusive products for direct-to-consumer channels, leveraging a speed-to-market model anchored on new sourcing countries that are in proximity to where the product will be distributed for sale. “We believe this is a big long-term opportunity for us,” Alberini said.