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Guess CEO Explains ‘Intentional’ 19% Inventory Increase

Guess Inc. reported a net profit decline of 26.9 percent to $21.8 million from $29.9 million for the same period in the prior year in its third-quarter 2023 fiscal report released Tuesday.

The global fashion company also reported that its revenues were $633 million, down 2 percent in U.S. dollars but up 10 percent in constant currency compared to Q3 last year, mostly due to a strong business in Europe.

The results were slightly lower than what most analysts had predicted.

“We are pleased with our third quarter financial results, which exceeded our revenue and operating profit expectations in a challenging retail environment,” CEO Carlos Alberini said. “For the period, we managed the business well and delivered an 8.6 percent operating margin and $55 million in operating profit. Lower performance-based compensation helped us partially offset the gross margin pressure we experienced as a result of the adverse currency impact associated with the strong U.S. dollar and lower full price selling.”

Total net revenue for the nine months ended Oct. 29, 2022 increased 4 percent to $1.87 billion, from $1.79 billion in the same prior-year period. In constant currency, net revenue increased by 14 percent.

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By region, Q3 revenue generated from retail in the Americas fell 2 percent in U.S. dollars and 1 percent in constant currency. Retail comp sales there, including e-commerce, decreased 1 percent in U.S. dollars and remained relatively flat in constant currency. Meanwhile, Americas wholesale revenues fell 10 percent in U.S. dollars and 9 percent in constant currency.

Europe Q3 revenues decreased 2 percent in U.S. dollars and increased 17 percent in constant currency. European retail comp sales, including e-commerce, decreased 8 percent in U.S. dollars and increased 9 percent in constant currency.

It was a different story in Asia where Q3 revenues increased 10 percent in U.S. dollars and 28 percent in constant currency. Retail comp sales, including e-commerce, decreased 2 percent in U.S. dollars and increased 13 percent in constant currency.

Overall licensing revenues also grew by 4 percent in U.S. dollars, driven primarily by the sale of handbags.

Like its competitor Gap Inc. the company has also witnessed a consumer shift from casual to dressier items as the pandemic lessens and people return to the office and normalcy. “While our business has historically capitalized on sales of denim products during the back-to-school season, this year, we saw a deceleration in sales of casual products and athleisure and a continued acceleration of sales of dressy products, as the customer is more focused on going out, traveling and socializing versus staying home,” Alberini said in the earnings conference call. He noted that dresses have been selling well along with handbags and other accessories.

Sweaters and other warmer weather items have not performed well but that is probably due to the temperatures being hotter than usual in the period, he noted.

He added that is the case with other brands, excess inventory has also been an issue of late. “With respect to inventory turns, just we are carrying more inventory than we think we can carry for the business,” he said of the company holding 19 percent more stock than a year ago. “This has been absolutely done intentionally. We order[ed] inventory earlier to mitigate the supply chain issues that we were experiencing. And as a result of that we are carrying some extra inventory.”

Guess has also been in the news this week for entering into a controversial collaboration with Brandalised which allegedly does not have the right to use the artwork it has by anonymous British graffiti artist Banksy. Banksy requested that people shoplift from the Guess store in London as a result.