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Guess Reports More Stable Q3 Thanks to European Wholesale Efforts

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Things are turning around for Guess after making it through a turbulent second quarter of fiscal 2021.

In a Nutshell: Celebrating nearly one year back with Guess, CEO Carlos Alberini announced in an earnings call Wednesday that the company experienced a “very good” third quarter, reporting adjusted earnings per share of $0.58 versus $0.22 last year.

Much of the quarter’s success came from Guess’ European business, which saw increased wholesale revenue after Guess extended the Fall/Winter shipping window and canceled the development of its pre-Spring/Summer collection. With a second iteration of government-mandated shutdowns most severely affecting Europe and Canada, Guess is experiencing an uptick in its e-commerce business, which Alberini said has been “partially offsetting the negative store trends.”

Despite lower foot traffic in the third quarter, shoppers who do visit stores are more likely to spend, he added.

“I believe that many of our wholesale customers are concentrating their price within fewer, stronger, highly reliable brands and we are clearly one of those preferred brands,” said Alberini.

The company’s current strategy is to deliver a more selective, globally cohesive offering in-store and promote omnichannel engagement. It will also continue its customer-centric goals established last year and will further implement its Customer 360 project for better insight into the customer journey.

Denim and other core products such as shoes and activewear will continue to be a main focus, as they are reportedly outperforming the rest of the business.

Sales: In Q3, Guess reached $569 million in third-quarter revenue, down 8 percent in U.S. dollars and 10 percent in constant currency. U.S. and Canada retail sales were down 23 percent as a result of Covid-19 pandemic-related traffic declines. Europe showed an improvement in quarterly store sales, though they ultimately slumped 18 percent as a result of more mandated shutdowns that occurred during the quarter’s final week.

E-commerce business in both North America and Europe was up 19 percent in the third quarter, a 10 percent improvement from the second quarter.

And despite the increase in European wholesale business, Guess’ Americas wholesale business declined 34 percent, though it’s reportedly improving each quarter.

Earnings: Gross margin for the quarter was 42.1 percent, 480 basis points higher than the previous year. As a result of higher markup and lower discounting, Guess increased its product margin by 200 basis points.

The company more than doubled its adjusted operating profit and achieved an adjusted operating margin of 9.7 percent, representing an expansion of 600 basis points versus last year. Adjusted operating profit for the third quarter was $55 million—a 140 percent increase from last year’s third quarter, which totaled $23 million. Guess ended its third quarter with $365 million in cash compared to $110 million the previous year.

CEO’s take: “Since Guess started 40 years ago, the company has always adapted its business very effectively to the challenges presented by the market, the environment and new customer preferences,” Alberini said. “Throughout its entire history, this company has evolved successfully time and time again. I strongly believe that today presents our company with yet another opportunity to transform our business and increase our earnings power. I also believe that we have the team to accomplish this and I look forward to the years of growth to come.”

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