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European Shutdowns Drive 8% Revenue Drop at Guess

Expense management helped Guess Inc. increase net earnings 133.7 percent in the second quarter compared to two years earlier.

In a Nutshell: Guess Inc., in reporting fiscal 2022 second quarter results, said the Covid-19 pandemic is continuing to impact its businesses.

During the quarter, the company experienced lower net revenue compared to the second quarter of fiscal 2020, as it remained challenged by lower demand, capacity restrictions and temporary store closures. In light of the current environment, Guess said it continues to strategically manage expenses in order to protect profitability.

During the three months, the company gradually reopened stores that closed at the end of the first quarter of fiscal 2022 due to Covid restrictions. The overall impact resulted in stores being closed for approximately 5 percent of the total days during the period, primarily in Europe and Canada. As of July 31, all its stores were open.

Guess said it expected revenues in the third quarter of fiscal 2022 to be slightly negative to flat versus the third quarter of fiscal 2020 as pandemic-related traffic declines are almost offset by continued momentum in its global e-commerce business and the favorable shift of European wholesale shipments from the second quarter into the third quarter.

For the full fiscal year 2022, assuming no additional Covid-related shutdowns past the second quarter, Guess said it expected revenues to be down mid-single digits versus fiscal 2020 and operating margin to reach approximately 10 percent. The expectations for the full year also assume a return to a normal cadence of product development for its European wholesale business. The company said these and other comparisons were versus the pre-pandemic periods from two fiscal years prior in order to provide a more normalized comparison.

On a more positive note, Paul Marciano, co-founder and chief creative officer, said, “During the quarter, we made great progress on our brand elevation strategy. This is a very ambitious project that touches almost every aspect of our business. The work that our teams have put into this has been extraordinary and I want to thank them for their great contributions to this key initiative for our company and our future.”

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Sales: Net revenue for the second quarter of fiscal 2022 ended July 31 fell 8 percent to $628.6 million from $683.2 million in same period in fiscal 2020.

Earnings: Net earnings for the quarter increased 133.7 percent to $64.1 million from $27.4 million for same period in fiscal 2020.

Adjusted diluted earnings per share (EPS) increased 152.6 to 96 cents compared to 38 cents in the year-earlier quarter.

Earnings from operations in the quarter increased 90 percent to $87.4 million from $46 million in the second quarter of fiscal 2020. Operating margin increased 7.2 percent to 13.9 percent from 6.7 percent in the second quarter of fiscal 2020, driven primarily by lower markdowns, lower occupancy costs and higher initial markups.

CEO’s Take: Carlos Alberini, CEO, said, “We are very pleased with our performance this quarter, which significantly exceeded our earnings expectations. Compared to the second quarter of fiscal 2020, we expanded operating margin by over 700 basis points to 13.9 percent. Our revenues for the quarter finished down 8 percent [year over year]. The entire decline was due to a timing shift of European wholesale shipments into the third quarter and the impact of permanent store closures. We achieved this result in spite of the pandemic and being significantly less promotional in all of our direct-to-consumer businesses.”

“Based on our progress, we now expect to deliver our 10 percent operating margin goal in the current year and are raising our expectations to reach 12 percent by fiscal year 2024, which would yield a return on invested capital of over 30 percent and adjusted earnings per share of around $3.50,” Alberini added. “The Guess brand has significant white space for revenue growth and we are confident in our ability to reach our $2.8 billion revenue target by fiscal 2024. We continue to prioritize returning value to our shareholders and announced today that our board has approved an increase of our existing share buyback program to $200 million. Overall, I could not be more excited about our future.”