In a Nutshell: It was a mixed bag for Guess Inc. in the second quarter, as top line growth and operating earnings were up, but the bottom line fell.
The company did revise its outlook upward for the fiscal year based on the performance, as well as its strong inventory position and expectations for the Fall and Holiday seasons. Revenue is now forecast to grow between 3 percent and 3.5 percent, with an operating margin of 5.2 percent to 5.5 percent.
Guess, which ended the quarter with 1,724 stores worldwide compared to 1,662 a year earlier, projects earnings per share of $1.28 to $1.36 for the fiscal year.
Sales: Net revenue for the second quarter ended Aug. 3 increased 5.8 percent to $683.2 million compared to $645.9 million in the prior-year quarter.
Americas retail revenues rose 0.9 percent to $198.97 million, while retail comparable sales, including e-commerce, was up 2 percent. Americas wholesale revenue increased 22.3 percent to $41.9 million.
Europe revenues increased 9.1 percent to $340.51 million, as retail comp sales, including e-commerce, decreased 3 percent. Asia revenues rose 0.6 percent to $83.3 million, while retail comp sales, including e-commerce, fell 13 percent. Licensing revenue was off 5.9 percent to $.
Earnings: Net earnings in the second quarter dipped 0.8 percent to $25.3 million from $25.5 million for the prior-year period. Operating earnings for the quarter increased 44.2 percent to $46 million compared to $31.9 million in the prior-year quarter.
Operating margin improved 180 basis points to 6.7 percent from to 4.9 percent in the prior-year quarter, driven primarily by higher initial markups in Europe and Americas retail, lower logistics costs and leveraging of expenses in Europe, and lower expenses related to certain professional service and legal fees and related costs. These were partially offset by higher advertising expenses and wage pressures, and higher markdowns in Americas retail. The negative impact of currency on operating margin for the quarter was approximately 10 basis points.
Operating margin for the company’s Americas retail segment increased 20 basis points to 3 percent, driven primarily by the favorable impact from higher initial markups and positive comparable sales, partially offset by wage pressures and higher markdowns. Operating margin for Americas wholesale rose 460 basis points to 20.1 percent, due primarily to higher initial markups and lower markdowns.
Operating margin for the Europe segment gained 540 basis points to 15.2 percent, lifted by higher initial markups, lower logistics costs and leveraging of expenses, while operating margin for the Asia segment declined 780 basis points, or 5.8 percent, on overall deleveraging of expenses and higher markdowns.
Operating margin for the Company’s Licensing segment decreased 470 basis points to 83.8% in the second quarter of fiscal 2020, compared to 88.5% in the prior-year quarter.
CEO’s Take: Carlos Alberini, CEO, said: “I am very pleased with our second quarter financial performance, which delivered strong operating profit growth. This performance exceeded our expectations and was driven by a solid top line increase, strong margin performance and effective expense management…Overall, our direct-to-consumer businesses, which include stores and e-commerce, performed in line with our expectations in all regions and our wholesale businesses in the Americas and Europe delivered a very strong performance compared to our expectations. Based on our second quarter performance, our strong inventory position and our expectations for the Fall and Holiday seasons, we are raising our guidance for the full year.”