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Guess Loss Widens in First Quarter, but Revenues Rise Across Regions

Guess Inc. continues to look for ways to improve operations and reduce costs, after a challenging first quarter.

In a Nutshell: Guess Inc. saw its net loss widen in the first quarter, even as revenues rose in every region.

Guess reported that its operating margin in the period improved 20 basis points, but still stood at a negative 4.6 percent, compared to negative 4.8 percent in the prior-year quarter. The slight improvement was credited to the favorable impact from positive comparable sales in Europe and Americas retail, higher initial markups in Europe and Americas retail and lower expenses related to certain professional service and legal fees and related costs.

But the company cited overall deleveraging of expenses, mainly in Asia, higher markdowns in U.S. retail, and an unfavorable business mix in Europe as among the causes for the continued negative operating margin.

Guess issued an updated outlook for the fiscal year ending Feb. 1, 2020, that includes an increase of 3.5 percent to 4.5 percent in net revenue and an operating margin of 6 percent to 7 percent. Earnings per share were forecast to be $1.09 to $1.20. In the first quarter, the company had loss per share of 27 cents.

As of May 4, 2019, Guess directly operated 1,174 retail stores in the Americas, Europe and Asia. The company’s licensees and distributors operated 550 additional retail stores worldwide.

Sales: Net revenue for the first quarter ended May 4 increased 3 percent to $536.7 million compared to $521.3 million in the prior-year quarter.

Americas retail revenues also rose 3 percent to $176.42 million, while retail comp sales, including e-commerce, was up 4 percent. Americas wholesale revenues rose 13.6 percent to $46.21 million.

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Europe revenues increased 2.2 percent to $210.06 million, as retail comp sales, including e-commerce, fell 1 percent. Asia revenues were up 1.4 percent to $85.19 million, with retail comp sales, including e-commerce, decreased 15 percent. Licensing revenue was down 4.9 percent to $18.82 million.

Earnings: Guess reported a net loss of $21.4 million, 0.7 percent more than the $21.2 million loss for the first quarter of fiscal 2019. The company had a loss from operations in the quarter of $24.5 million, an improvement of 1.7 percent from the $24.9 million loss in the prior-year quarter.

CEO’s Take: Carlos Alberini, CEO, said: “I am pleased with our progress this period, as we had another quarter of solid performance with strong revenue growth, improved gross margins and well managed expenses. Our business in the Americas and Europe posted strong revenue growth, which was partially offset by weakness in Asia. During the quarter we were also able to complete a convertible debt transaction at very favorable terms to deploy funds to buy back company shares.”

“Guess today has a powerful global network, significant brand relevancy and is attracting a new generation of young customers who love our brand. We continue to see significant white space to grow globally and our opportunities to improve operations and reduce costs are very material. I am confident that our potential to create significant shareholder value is strong.”