Guess? Beats on Q4 Earnings, Lags Revs - Analyst Blog

Guess?, Inc.'s GES fourth-quarter fiscal 2014 earnings of 83 cents exceeded the Zacks Consensus Estimate of 80 cents by 3.8% and were on the higher end of management's expected range of 74 cents to 84 cents per share. Earnings, however, declined 12.6% year over year due to a weak top line during the quarter.

Lower taxes and advertising expenses made up for weaker revenues and margins to result in better than expected earnings performance in the quarter.

Revenues and Margins

Revenues slipped 6.0% to $768.4 million due to lower traffic in most of the stores of the company. Bad weather conditions and cold waves also resulted in shutdowns of shops in the last two months of the quarter. Revenues also missed the Zacks Consensus Estimate of $773 million and were near the lower end of management's expectation of $750 million to $777 million. On a constant currency basis, revenues fell 6.5%.

Operating earnings fell 12.8% to $104.6 million from $120.0 million in the year-ago quarter. The operating margin shrank 110 basis points (bps) year over year to 13.6%. The contraction in margin was the result of markdowns and lower comps in North American retail and European wholesale business.

Segment Results

The North American stores generated revenues of $329.0 million in the fourth quarter, down 6.0% from the prior-year quarter. Comparable store sales fell 4.4% due to lower mall traffic in the U.S. and Canada. Excluding the currency impact, segment revenues slipped 3.0%.

The European segment's revenues slipped 4.4% to $287.1 million, due to lower wholesale business of Spring/Summer'14 order.

The Asian segment's revenues fell 1.4% to $83.0 million, due to weak results in Greater China following lower consumer spending. In constant currency, the segment's revenues slipped 2.7%.

Net revenue in the North American Wholesale segment fell 20.0% to $41.0 million. In constant currency, the segment's revenues slipped 18.5%.

Net revenue in the Licensing segment slipped 4.6% to $28.4 million from the prior-year period.

Fiscal Results

For fiscal 2014, Guess?'s earnings of $1.91 exceeded the Zacks Consensus Estimate of $1.89 by 1.05% and management's expected range of $1.73 to $1.83 per share. Earnings, however, declined 1.0% year over year.

Revenues slipped 3.0% to $2.6 million due to lower traffic in most of the stores of the company. Revenues also missed the Zacks Consensus Estimate of $2.6 billion and were near the lower end of management's expectation of of $2.55 billion to $2.57 billion. In constant currency, revenues fell 4.0%.

Balance Sheet and Cash Flow

Guess? ended the fourth quarter with cash and cash equivalents of $502.9 million compared with $350.1 million at the end of the previous quarter. Long-term liabilities were $211.0 million compared with $200.8 million in the prior quarter.

Guidance for First-Quarter Fiscal 2015

For the first quarter of fiscal 2015, the company expects revenues in the range of $520 million to $535 million, operating margin in the range of -1.5% to -0.5% and adjusted loss in the range of 9 cents to 5 cents per share. The company's expectations fall short of the Zacks Consensus Estimate of 15 cents.

Guidance for Fiscal 2015

For fiscal 2015, net revenue is now expected in the range of $2.53 billion to $2.58 billion. Operating margin is expected at 7.0% to 8.0%. Adjusted earnings are expected in the range of $1.40 to $1.60.

The guided earnings fell short of the Zacks Consensus Estimate of $1.89. 

Guess? Inc. currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks to consider in the retail sector include Hanesbrands Inc. HBI, Columbia Sports Inc. COLM and Micheal Kors Inc. KORS. While Hanesbrands and Micheal Kors carry a Zacks Rank #1 (Strong Buy), Columbia Sports has a Zacks Rank #2 (Buy).