Guess? Conference Call Highlights

Guess? GES reported its Q3 earnings on Thursday. Shares of the company are down a whopping ten percent. Below are some key highlights from its conference call: Performance Metrics: • We reported third quarter results and posted earnings per share of $0.24, which was above our guidance. • Our operating performance was in line with our expectations. • Overall, the environment remains soft in the North America Retail stores with a continuation of the last quarter trend. • In Europe, despite a softer third quarter than expected, we're encouraged by the current performance of both our retail and wholesale businesses. • In North America, our e-comm business grew by 38% in the third quarter a very good momentum we have seen since a year ago. • In terms of product, as expected, we saw weaknesses in women's. • In Asia, our business finished slightly below expectation in the third quarter. • The South Korean economy remained soft in consumer demand, and we have to be more promotional than we plan. • In Greater China, we continued to see softness in comp, mainly driven by overall macroeconomic environment. • A central part of that plan in addition to constant drive to improve our product offering is to evaluate the profitability of the different businesses in our global portfolio. • Reducing the size and cost structure of the less profitable ones, while securing capital investment to the one with more profit potential growth in this area. Financial Metrics: • Net earnings for the third quarter was $21 million and diluted earnings per share was $0.24 compared to $0.42 adjusted diluted earnings per share in last year's third quarter. • Third quarter revenues were $590 million, 4% lower than the prior year and down 3% in constant currency. • Total company gross profit for the third quarter was below our expectations at $214 million, down 6%. • Gross margins declined 90 basis points to 36.3% due primarily to negative comparable store sales and more markdowns in North America Retail. • SG&A dollars increased 6% versus the prior year to $189 million. The increase in SG&A was primarily due to higher asset impairment charges related to underperforming retail stores in North America and Europe. • Operating earnings for the third quarter was $25 million. Our operating margin declined 390 basis points to 4.2%. • Other net income was $7 million and mostly consisted of net unrealized and realized gains on foreign currency contracts and net unrealized gains on other non-operating assets. • Our effective third quarter tax rate was 33%. • This is higher than our expected full year tax rate of 32% due to a shift in earnings distributions between different taxable jurisdictions within the quarters. • Segment Performance: • In North America Retail, third quarter revenues dropped 4% to $243 million. • Negative comps in brick-and-mortar stores were partially offset by 38% growth in our e-commerce business. • Overall, comp store sales including e-commerce declined 5% in the U.S. and Canada, and 4% in constant currency. • E-commerce sales improved the overall comps by 2 percentage points. • Operating earnings decreased by $17 million to a loss of $11 million, and operating margin declined 670 basis points to negative 4.3%. • Compared to last year's quarter, gross margins were lower due to occupancy deleverage and more markdowns. • During the quarter, we opened eight new stores and closed four, ending the period with 492 stores. • In Europe, third quarter revenues were $190 million, a decline of 6% in U.S. dollars and 3% in local currency. • Operating earnings decreased by 43%, or $6 million, to $8 million. • In Asia, revenues in the third quarter declined 2% to $71 million and declined 5% in constant currency. • The decline in revenues was mainly driven by negative comps in South Korea and China. • Operating earnings fell 64% to $2 million and operating margin dropped 510 basis points to 3%. • In North America Wholesale, third quarter revenues were flat compared to our prior year at $54 million. Guidance and Trends: • In our North America Retail business, comp sales are down in the high-single-digit so far in the fourth quarter and we are planning the fourth quarter, assuming a comp decline, in the high-single-digit range. • This would translate into a revenue decrease in the mid-single-digits. • For the full year, we expect comp sales to decrease in the mid-single-digits and for revenues to be down in the mid-single-digits. • In Asia, economic conditions continue to be challenging, especially in Korea where comps continue to be soft so far in the fourth quarter. • These expectations would result in full year consolidated revenues between $2.42 billion and $2.43 billion. • Operating margin between 5% and 5.5%, and earnings per share in the range of $1 and $1.10 per share.