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Guess Forecasts Fourth Quarter, Full-Year Revenue Decline

European wholesale and Americas retail lifted Guess Inc. to an uptick in third quarter revenue and earnings.

In a Nutshell: Guess Inc. said it expect revenues in the fourth quarter to be down mid-single digits versus the fourth quarter of fiscal 2020, as the impact of permanent store closures and an unfavorable shift of European wholesale shipments from the fourth quarter into the first quarter of next year are partially offset by continued momentum in its global e-commerce business.

For the full fiscal year 2022, assuming no increased Covid-related shutdowns from current levels, Guess said it expect revenues to be down low-single digits versus fiscal 2020. These comparisons are versus the pre-pandemic periods from two fiscal years prior in order to provide a more normalized comparison.

In addition, while it began the third quarter of fiscal 2022 with 100 percent of its directly operated stores open for business, the company started to incur a new round of government-mandated temporary store closures toward the end of the quarter. This resulted in the closure of less than 5 percent of directly operated stores as of Oct. 30, mostly in Europe, the impact of which was minimal to third quarter results.

Although it achieved slightly higher net revenue during the third quarter of fiscal 2022 compared to the third quarter of fiscal 2020, Guess said the company remained challenged by lower traffic and capacity restrictions.

“I am very pleased with the progress we have made during the last few months with our brand elevation strategy,” Paul Marciano, co-founder and chief creative officer, said. “For the first time in our company’s history, we have one global line of products across all categories and our products are highly elevated, with a strong focus on quality and sustainability. The Guess brand is enjoying strong momentum worldwide, and we see a big opportunity to gain market share and grow in multiple markets and product categories.”

As of Oct. 30, Guess directly operated 1,052 stores in the Americas, Europe and Asia. The company’s partners and distributors operated 558 additional stores worldwide.

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Sales: Total net revenue for the third quarter ended Oct. 30 increased 4.4 percent to $643.1 million from $615.9 million in the third quarter of fiscal 2020. Compared to the prior-year quarter, net revenue was up 13 percent from $569.3 million.

Earnings: Net earnings for the third quarter increased 140.5 percent to $29.9 million from $12.4 million for the third quarter of fiscal 2020. Compared to fiscal 2021, third quarter earnings were up 13.3 percent from $26.4 million.

Diluted earnings per share (EPS) increased 150 percent to 45 cents in fiscal 2020 and 41 cents prior-year quarter.

Earnings from operations rose 190 percent to $65.7 million from $22.6 million in the third quarter of fiscal 2020. Compared to the 2021 quarter, earnings from operations increased 47.7 percent.

Operating margin in the period increased 6.5 percent to 10.2 percent from 3.7 percent in the third quarter of fiscal 2020, driven primarily by lower markdowns, higher initial markups, overall leveraging of expenses and lower occupancy costs, partially offset by higher performance-based compensation. Operating margin was up 2.4 percent to 10.2 percent from 7.8 percent in the same prior-year quarter, driven primarily by lower non-cash impairment charges, lower markdowns, higher initial markups and overall leveraging of expenses, partially offset by higher performance-based compensation.

CEO’s Take: Carlos Alberini, CEO, said: “We are very pleased with our performance this quarter, which exceeded our expectations for revenues and earnings…The better performance than expected was driven by our European wholesale, Americas retail and licensing businesses, which posted strong top and bottom line results across the board. All in all, we delivered a 10 percent operating margin in the period, driven by strong gross margin expansion, as a result of lower promotional activity and improved IMUs in spite of increased freight costs related to the supply chain disruptions experienced in the market.”

“We are confident in our plans for the holiday business,” Alberini added. “Our inventory position is strong and our customers are responding well to our assortments. Based on our progress, we now expect to deliver an operating margin of 11 percent in the current year, double that of fiscal 2020, pre-pandemic…I believe that we are at an inflection point at Guess and I am very confident our business is well positioned to generate superior returns in the future.”