Guess? Inc. Faces Supply Chain Bottlenecks With 15% Inventory Buildup: Plans To Streamline Inventory, Reclaim Cash Flow Once Red Sea Crisis Subsides

On Thursday, Guess? Inc. GES reported a 15% increase in its inventory, driven by ongoing supply chain disruptions and plans to streamline its stock once these issues subside.

What Happened: During the company's first-quarter earnings, the retailer explained that the inventory buildup, which includes both dollars and constant currency, was largely intentional.

CEO Carlos Alberini explained it was part of their strategy to deal with supply chain challenges, especially with inventory coming into Europe from Asia. These challenges were exacerbated by the Red Sea crisis, which disrupted supply chains.

“We have been aggressive in bringing product early, even if that represented a need for an additional investment and we are happy with it," he stated.

Alberini went on to add that while they expected to streamline inventory ownership over time, the increase in inventory was necessary to support the business.

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He stated that the company has now fully integrated the acquisition of Rag & Bone into its operations, and the 15% increase in inventory is a more accurate reflection of their current inventory level.

Over the medium term, Guess? plans to reduce inventory ownership, particularly as supply chain issues, like long transit times, normalize.

CFO Dennis R. Secor added that the company has invested about $50 million in working capital to improve cash flow.

While this investment was necessary to maintain reliable product delivery, especially in light of the supply chain challenges, they expect to reclaim that cash once the supply chain situation improves.

Why It’s Important: Guess? Inc. reported its first-quarter earnings with total revenue reaching $648 million, marking a 9% increase in U.S. dollars and a 12% rise in constant currency.

Despite the top-line growth, the company’s gross margin declined by 200 basis points year-over-year to 39.9%. The retailer posted an adjusted operating loss of $26 million, translating to a margin of -4%, and an adjusted loss per share of $0.44.

Price Action: Guess? Inc. shares slipped 1.08% during Thursday's regular trading session but rebounded with a 2.18% gain in Friday's pre-market trading, according to Benzinga Pro data.

Benzinga's Edge Stock Rankings show that while the stock has a positive short-term trend, its medium and long-term outlooks remain unfavorable. More detailed metrics are available here.