Market Overview

Guess?, Inc. Reports Third Quarter Results

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Q3 Fiscal 2018 GAAP Net Loss Per Share of
$0.04, Compared to EPS of $0.11 in Q3 Fiscal 2017; Q3 Fiscal 2018
Adjusted EPS of $0.12, Compared to $0.11 in Q3 Fiscal 2017

Q3 Fiscal 2018 Revenues Increased 3% to $554
Million; Increased 1% in Constant Currency

Guess?, Inc. (NYSE:GES) today reported financial results for its third
quarter ended October 28, 2017.

Victor Herrero, Chief Executive Officer, commented, "Overall, our third
quarter adjusted operating profit finished within our expectations, and
adjusted earnings per share ended above the high-end of our guidance. We
continue to see good momentum in Europe and Asia, where our revenues
were up 19% and 17%, respectively, mainly driven by new store openings,
wholesale growth and positive comp sales. We were also thrilled with the
operating margin expansion in the Americas Retail despite a sales
decline. This is the result of our profit improvement plan which
included tight markdown management, higher IMUs, negotiated rent
reductions and unprofitable store closures."

Mr. Herrero concluded, "Overall, as I peek into the future of our
Company, I believe that Europe and Asia still offer a lot of opportunity
and should continue to grow double-digits next year. I expect the
profitability in the Americas to continue to benefit from our cost
reduction and margin improvement initiatives. Finally, we remain
committed to our long-term goal of 7.5% operating margin that we expect
to achieve through revenue growth and disciplined cost control."

This press release contains certain non-GAAP, or adjusted, financial
measures. References to "adjusted" results exclude the impact of (i) net
(gains) losses on lease terminations, (ii) asset impairment charges,
(iii) restructuring charges, (iv) a restructuring related exit tax
charge, (v) a gain from the sale of a minority interest investment and
(vi) the related tax effects of these adjustments, where applicable. A
reconciliation of reported GAAP results to comparable non-GAAP results
is provided in the accompanying tables and discussed under the heading
"Presentation of Non-GAAP Information" below.

Third Quarter Fiscal 2018 Results

For the third quarter of fiscal 2018, the Company recorded GAAP net loss
of $2.9 million, compared to GAAP net earnings of $9.1 million for the
third quarter of fiscal 2017. GAAP diluted loss per share was $0.04 for
the third quarter of fiscal 2018, compared to GAAP diluted earnings per
share of $0.11 for the prior-year quarter. The Company estimates that
currency had a minimal impact on diluted loss per share in the third
quarter of fiscal 2018.

For the third quarter of fiscal 2018, the Company recorded adjusted net
earnings of $10.4 million, an 8.1% increase compared to $9.6 million for
the third quarter of fiscal 2017. Adjusted diluted earnings per share
increased 9.1% to $0.12, compared to $0.11 for the prior-year quarter.

Net Revenue. Total net revenue for the third quarter of
fiscal 2018 increased 3.3% to $554.1 million, compared to $536.3 million
in the prior-year quarter. In constant currency, net revenue increased
by 0.6%.

  • Americas Retail revenues decreased 13.4% in U.S. dollars and 14.3% in
    constant currency. Retail comp sales including e-commerce decreased
    10% in U.S. dollars and 11% in constant currency.
  • Europe revenues increased 18.8% in U.S. dollars and 11.9% in constant
    currency. Retail comp sales including e-commerce increased 10% in U.S.
    dollars and 4% in constant currency.
  • Asia revenues increased 16.8% in U.S. dollars and 18.5% in constant
    currency. Retail comp sales including e-commerce increased 3% in U.S.
    dollars and 5% in constant currency.
  • Americas Wholesale revenues decreased 2.5% in U.S. dollars and 4.5% in
    constant currency.
  • Licensing revenues increased 9.1% in U.S. dollars and constant
    currency.

Operating Earnings (Loss). GAAP operating loss for the
third quarter of fiscal 2018 was $1.0 million (including a $0.2 million
favorable currency translation impact), compared to GAAP operating
earnings of $15.1 million in the prior-year quarter. GAAP operating
margin in the third quarter decreased 300 basis points to negative 0.2%,
from 2.8% in the prior-year quarter, driven primarily by net losses on
lease terminations incurred during the current year-quarter and higher
performance-based compensation costs. The negative impact of currency on
operating margin for the quarter was roughly 10 basis points.

For the third quarter of fiscal 2018, adjusted operating earnings
decreased 21.1% to $12.6 million, from $15.9 million in the same
prior-year quarter. Adjusted operating margin was 2.3%, a decrease of 70
basis points compared to the same prior-year quarter driven primarily by
higher performance-based compensation costs.

  • Operating margin for the Company's Americas Retail segment improved
    240 basis points to negative 2.5% in the third quarter of fiscal 2018,
    compared to negative 4.9% in the prior-year quarter, driven primarily
    by the favorable impact from lower markdowns, negotiated rent
    reductions, higher initial markups and store closures, partially
    offset by the negative impact on the fixed cost structure resulting
    from negative comparable sales.
  • Operating margin for the Company's Europe segment decreased 320 basis
    points to 3.0% in the third quarter of fiscal 2018, from 6.2% in the
    prior-year quarter, driven primarily by higher distribution costs
    resulting from the relocation of the Company's European distribution
    center, partially offset by higher initial markups.
  • Operating margin for the Company's Asia segment increased 680 basis
    points to 3.7% in the third quarter of fiscal 2018, compared to
    negative 3.1% in the prior-year quarter, driven primarily by overall
    leveraging of expenses.
  • Operating margin for the Company's Americas Wholesale segment
    increased 70 basis points to 18.1% in the third quarter of fiscal
    2018, compared to 17.4% in the prior-year quarter, due to a lower SG&A
    rate driven primarily by slightly lower expenses and higher gross
    margins.
  • Operating margin for the Company's Licensing segment increased 620
    basis points to 90.8% in the third quarter of fiscal 2018, compared to
    84.6% in the prior-year quarter.

Other net income was $2.8 million for the third quarter of fiscal 2018,
which primarily includes unrealized gains on non-operating assets and
net unrealized and realized mark-to-market revaluation gains on foreign
exchange currency contracts, compared to $0.1 million in the prior-year
quarter.

Nine-Month Period Results

For the nine months ended October 28, 2017, the Company recorded GAAP
net loss of $8.9 million, compared to GAAP net earnings of $16.2 million
for the nine months ended October 29, 2016. GAAP diluted loss per share
was $0.12 for the nine months ended October 28, 2017, compared to GAAP
diluted earnings per share of $0.19 for the prior-year period. The
Company estimates the negative impact of currency on diluted loss per
share for the nine months ended October 28, 2017 was approximately $0.02
per share.

For the nine months ended October 28, 2017, the Company recorded
adjusted net earnings of $7.1 million, a 223.3% increase compared to
$2.2 million for the nine months ended October 29, 2016. Adjusted
diluted earnings per share increased 300.0% to $0.08, compared to $0.02
for the prior-year period.

Net Revenue. Total net revenue for the first nine months
of fiscal 2018 increased 3.7% to $1.59 billion, compared to $1.53
billion in the prior-year period. In constant currency, net revenue
increased by 3.1%.

  • Americas Retail revenues decreased 13.1% in U.S. dollars and 13.2% in
    constant currency. Retail comp sales including e-commerce decreased
    12% in U.S. dollars and constant currency.
  • Europe revenues increased 20.5% in U.S. dollars and 19.0% in constant
    currency. Retail comp sales including e-commerce increased 7% in U.S.
    dollars and 6% in constant currency.
  • Asia revenues increased 17.0% in U.S. dollars and 17.1% in constant
    currency. Retail comp sales including e-commerce increased 4% in U.S.
    dollars and constant currency.
  • Americas Wholesale revenues increased 2.5% in U.S. dollars and 2.3% in
    constant currency.
  • Licensing revenues were relatively flat in U.S. dollars and constant
    currency.

Operating Earnings (Loss). GAAP operating loss for the
first nine months of fiscal 2018 was $3.2 million (including a $0.9
million favorable currency translation impact), compared to GAAP
operating earnings of $1.7 million in the prior-year period. GAAP
operating margin in the first nine months of fiscal 2018 decreased 30
basis points to negative 0.2%, from 0.1% in the prior-year period,
driven primarily by net losses on lease terminations incurred during the
current year-period and higher performance-based compensation costs. The
negative impact of currency on operating margin for the first nine
months of fiscal 2018 was roughly 10 basis points.

For the nine months ended October 28, 2017, adjusted operating earnings
increased 66.7% to $14.3 million, compared to $8.6 million for the nine
months ended October 29, 2016. Adjusted operating margin was 0.9% for
the nine months ended October 28, 2017, an increase of 30 basis points
compared to the same prior-year period.

  • Operating margin for the Company's Americas Retail segment
    deteriorated 260 basis points to negative 6.0% in the first nine
    months of fiscal 2018, from negative 3.4% in the prior-year period,
    driven primarily by the negative impact on the fixed cost structure
    resulting from negative comparable sales.
  • Operating margin for the Company's Europe segment increased 180 basis
    points to 4.8% in the first nine months of fiscal 2018, compared to
    3.0% in the prior-year period. This increase was driven primarily by
    higher initial mark-ups and the favorable impact on the fixed cost
    structure resulting from overall leveraging of expenses, partially
    offset by higher distribution costs resulting from the relocation of
    the Company's European distribution center.
  • Operating margin for the Company's Asia segment increased 560 basis
    points to 2.5% in the first nine months of fiscal 2018, compared to
    negative 3.1% in the prior-year period. The improvement in operating
    margin was driven primarily by overall leveraging of expenses.
  • Operating margin for the Company's Americas Wholesale segment
    increased 110 basis points to 17.5% in the first nine months of fiscal
    2018, compared to 16.4% in the prior-year period. The increase in
    operating margin was due to higher gross margins.
  • Operating margin for the Company's Licensing segment increased 100
    basis points to 89.6% in the first nine months of fiscal 2018,
    compared to 88.6% in the prior-year period.

Other net income was $3.6 million for the first nine months of fiscal
2018, which primarily includes unrealized gains on non-operating assets
and net unrealized mark-to-market revaluation gains on foreign currency
balances, partially offset by net realized and unrealized mark-to-market
revaluation losses on foreign exchange currency contracts, compared to
$26.4 million in the prior-year period. For the nine months ended
October 29, 2016, other net income included a realized gain of $22.3
million from the sale of a minority interest investment. The gain from
the sale of the minority interest investment has been excluded for
purposes of calculating adjusted financial measures for the nine months
ended October 29, 2016. A reconciliation of reported GAAP results to
comparable non-GAAP results is provided in the accompanying tables and
discussed under the heading "Presentation of Non-GAAP Information" below.

Dividends

The Company's Board of Directors has approved a quarterly cash dividend
of $0.225 per share on the Company's common stock. The dividend will be
payable on January 3, 2018 to shareholders of record at the close of
business on December 13, 2017.

Outlook

The Company's expectations and updated outlook for the fourth quarter
and fiscal year ending February 3, 2018 are as follows:

Outlook for Total Company1
 
     
Fourth Quarter of Fiscal 20182 Fiscal Year 20182
 
Consolidated net revenue in U.S. dollars increase between 10.0% and 12.0% increase between 6.0% and 6.5%
 
Consolidated net revenue in constant currency3 increase between 5.0% and 7.0% increase between 4.0% and 4.5%
 
Estimated impact of extra week on consolidated net revenue increase of 3.0% increase of 1.0%
 
GAAP operating margin4 8.0% to 9.0% 2.5% to 2.8%
 
Adjusted operating margin5 8.0% to 9.0% 3.2% to 3.5%
 
Currency impact included in operating margin6 80 basis points 20 basis points
 
GAAP EPS4 $0.48 to $0.55 $0.36 to $0.43
 
Adjusted EPS5 $0.48 to $0.55 $0.56 to $0.63
 
Currency impact included in EPS6 $0.05 $0.02
 
Estimated impact of extra week on EPS $0.03 $0.03
   
Notes:
  1   The Company's outlook for the fourth quarter and fiscal year ending
February 3, 2018 assumes that foreign currency exchange rates remain
at prevailing rates.
 
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