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Guess Back on the Path to Profitability After Strong Q3

Guess CEO Carlos Alberini credited a diversified business and cost management for improvements in earnings in the third quarter, even as U.S. comps fell.

In a Nutshell: Guess Inc. delivered operating earnings and earnings per share (EPS) above the high end of its expectations in the third quarter.

Revenues were strong across all regions, except Asia, and distribution channels. Earnings jumped on improved cost management.

Guess updated its outlook for the full year, with net revenue now expected to increase between 2.7 percent and 3 percent. Operating margin is forecast to improve between 5.2 percent and 5.4 percent. EPS if projected to be $1.20 to $1.25.

At the end of the quarter, the company directly operated 1,174 stores in the Americas, Europe and Asia. Guess partners and distributors operated 569 additional stores worldwide.

Sales: Net revenue for the third quarter ended Nov. 2 increased 1.7 percent to $615.9 million from $605.4 million in the prior-year quarter.

Americas Retail revenue rose 4.9 percent. Retail comp sales, including e-commerce, decreased 3 percent.

Americas Wholesale revenue was up 7 percent. Europe revenues increased 9.1 percent while retail comp sales in the region, including e-commerce, increased 1 percent.

Asia revenues fell 8 percent, as retail comp sales, including e-commerce, decreased 21 percent.

Earnings: Net earnings for the quarter jumped 192.4 percent to $12.4 million compared to net loss of $13.4 million for the third quarter of fiscal 2019. Diluted earnings per share increased 205.9 percent to 18 cents compared to a diluted loss per share of 17 cents for the prior-year quarter.

Operating earnings in the period rose 205.3 percent to $22.6 million compared to a loss from operations of $21.5 million in the prior-year quarter. Operating margin increased 730 basis points to 3.7 percent, compared to negative 3.6 percent in the prior-year quarter, driven primarily by a European Commission fine that was incurred in the same prior-year quarter. The negative impact of currency on operating margin for the quarter was approximately 10 basis points.

Operating margin for the Americas Retail segment decreased 110 basis points to 0.9 percent in the quarter from 2 percent in the prior-year quarter, driven primarily by the unfavorable impact from higher markdowns and negative comparable sales, partially offset by higher initial markups. Operating margin for the Americas Wholesale segment increased 20 basis points to 19.9 percent from 19.7 percent in the prior-year quarter.

Operating margin for the Europe segment increased 410 basis points to 7 percent from 2.9 percent year on year, mainly due to higher initial markups, lower logistics costs, lower markdowns and overall leveraging of expenses.

Operating margin for the Asia segment deteriorated 520 basis points to negative 3 percent from 2.2 percent in the prior-year quarter, driven primarily by deleveraging of expenses due mainly to negative comparable sales and higher markdowns.

CEO’s Take: Carlos Alberini, CEO, said: “Overall, the strength of our businesses in Europe, Americas Wholesale and licensing, combined with a disciplined and effective approach to manage our costs, enabled us to more than offset softness in our Americas Retail and Asia businesses in the quarter. For the full year, we are maintaining the high end of our guidance and raising the low end. This speaks to the strength of our global brand and the power of our diversified business model, which provides us with multiple levers to continue to increase revenues and improve profitability.”

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