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Guess Gets Q4 Lift From US Market, E-Commerce

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Guess Inc. is rounding a corner.

During the company’s Q1 2022 earnings call Thursday, CEO Carlos Alberini said he is “extremely pleased” with Guess’s performance, stating that it exceeded expectations for revenues and profitability across all channels.

This is a stark contrast from how the company ended its 2021 fiscal year, when Guess experienced lower net revenue compared to the same prior-year period due to lower demand, temporary store closures and capacity restrictions.

While those elements still play a role in the status of the business, the company is experiencing “remarkable” progress. During Q1, revenues reached $520 million, doubling last year’s, and stacking up just 3 percent below revenues compared to fiscal year 2020. It also delivered a 5 percent adjusted operating margin and an adjusted operating profit of $26 million, which compares to an adjusted operating loss of $109 million last year during the height of the pandemic.

This also compares to an adjusted operating loss of $22 million in Q1 of fiscal 2020, which amounts to a $48 million improvement. Guess expects this to result in the acceleration of at least one year to reach its 10 percent operating margin goal by fiscal year 2024. Originally, the goal was set at fiscal year 2025.

The U.S. market is playing a big role in giving the company a much-needed boost. The country’s aggressive vaccine rollouts, coupled with stimulus check distribution and consumers’ urge to revenge-shop, has directly benefitted Guess. “The U.S. is clearly ahead of the curve, and the consumer is behaving strongly, exhibiting signs of a response to pent-up demand, being much more comfortable going out and shopping in stores, and very willing to spend on apparel and accessories,” Alberini said.

U.S. wholesale sales are also a contributor of success, stacking up just 2 percent down from fiscal 2020. The company reports that this business has shown consistent improvement quarter to quarter, with sales back to pre-pandemic operating levels.

On the other hand, Canada is still recovering from the pandemic and experiencing restrictions, and many regions within Europe are just beginning to lift restrictions and reopen stores. And while the company says Asia was less impacted by lockdowns overall, consumers in that region seem to be less motivated to resume shopping at pre-pandemic levels. Revenue in this region was down 35 percent in Q1.

“As you all know, the Covid situation around the world continues to be very fluid, depending on the specific countries levels of vaccination and other government actions,” Alberini added.

Another contributor of Q1 success was e-commerce, which during that period grew 61 percent in North America and Europe—almost double that of the previous quarter, which was up 38 percent. In Q3 and Q2, it was up 19 percent and 9 percent, respectively.

Alberini noted that in some cases, products sold exclusively online outperform its core categories, further highlighting the value of its digital business.

To meet ever-growing e-commerce demand, the company opened a distribution facility in Poland to service its Eastern Europe business, which it expects will produce significant savings related to processing and transportation costs, and improve service levels.

Still, Guess expects e-commerce growth to stabilize as the world returns to a sense of normalcy. As a result, it’s dedicated to bringing back brick-and-mortar after a series of store closures during the pandemic. In the past 15 months, Guess closed 140 retail locations and renegotiated more than 340 store leases.

“We have our eye out for strategic new store opportunities where the economics make sense,” Alberini said. “Current conditions in the real estate market are primed for us as a result of the massive levels of store closures that took place across the world over the last year.”

The company will test new locations with short-term popups showcasing different product capsules.

Guess will continue to focus on elevating the brand, which Alberini said requires scaling back on promotions. It’s also shifting its sights to alternative, sustainable materials in an effort to “protect the quality of the garment.” It’s working to eliminate virgin synthetic materials and significantly increase the amount of recycled materials in its lines by the end of the decade.

Earlier this month, the company committed to new sustainability targets including reducing greenhouse gas emissions by half in the next decade and expanding its Eco Smart line to make up 75 percent of its denim business in the next few years.

Guess is overall optimistic for the future, with varying outlooks by geography. It projects revenue in Q2 for European segments to be roughly flat compared to fiscal 2020, and grow modestly for the full year. In Asia, it expects revenue to decline—similar to that of Q1—but progress as the year advances. In America, it expects Q2 to perform better than Q1, with flat revenue for the full year.

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