Apparel retailer Guess?, Inc. GES reported first-quarter fiscal 2016 results, wherein the bottom line bettered the Zacks Consensus Estimate but the top line missed the same.
Guess? posted first-quarter fiscal 2016 earnings per share of 4 cents, which compared favorably to a loss of 3 cents incurred in the year-ago quarter. The improvement came on the back of lower cost as a result of tight expense management. Earnings also bettered the Zacks Consensus Estimate of a loss of 5 cents and management’s expectation of 3 cents to 6 cents loss.
Guess Inc. – Earnings Surprise | FindTheCompany
Revenues and Margins
Revenues slipped 8.4% to $478.8 million due to currency headwinds. Additionally, sluggish traffic and tough retail conditions in Europe affected revenues. The top line also missed the Zacks Consensus Estimate of $489 million by 2.1% and management's growth expectation of 1% to 2%. On a constant currency basis, revenues remained flat year over year. Nevertheless, the company’s e-Commerce business increased 14% from the year-ago level.
Adjusted operating income was $4.4 million as against a loss of $2.0 million in the year-ago quarter. Operating margin inflated 130 basis points year over year to 0.9% due to favorable impact from business mix. Operating expense management also helped in improvement of pre tax margin during the quarter.
Segment Results
Revenues from retail stores and e-Commerce sites in the North American segment declined 6% to $214.2 million. This was because the disruption of the West Coast port issue and extreme weather in all East Coast in Canada affected the earlier part of the quarter. Consolidated comparable store sales slipped 5.4% year over year on constant currency basis excluding e-Commerce sales. Excluding currency impact, consolidated comparable store sales dropped 3.8%.
The European segment's revenues decreased 14% to $137.4 million. On a constant currency basis, revenues increased 7.5% due to strong performance in Spain and Portugal.
The Asian segment's revenues fell 9% to $64.0 million due to negative comps. In constant currency, the segment's revenues slipped 6% from the year-ago period.
Net revenue in the North American Wholesale segment decreased 5% to $37.3 million. In constant currency, the segment's revenues increased 1% y/y as several orders were shifted to the quarter.
Net revenue in the Licensing segment increased 1% to $25.9 million from the prior-year period mainly due to a decline in royalty.
Other Financial Updates
During first-quarter fiscal 2016 earnings conference call, Guess? announced a quarterly dividend of 22.5 cents per share payable on Jul 3, 2015 to shareholders of record at the close of business on Jun 17.
Cautious Second-Quarter Fiscal 2016 Outlook
Management is not optimistic about the upcoming quarter. It expects currency fluctuations to be a significant headwind in fiscal 2016 and hurt top-line growth, margins as well as earnings.
For second-quarter fiscal 2016, the company expects revenues to decline in the range of 3.5% and 1.5% in constant currency. Currency is expected to affect the top line negatively by 9.5%. It expects earnings in the range of 12 cents to 16 cents as against 26 cents reported a year ago.
Fiscal 2016 Guidance
For fiscal 2016, Guess? expects net revenue to range between down 1.5% and up 0.5% in constant currency compared with a decline of 5.9% in the prior-year quarter. Previously, it expected revenues to decline in the range of negative 1 pp to positive 1 pp in constant currency. Currency headwinds are expected to have a negative impact of about 7% on consolidated revenue growth. Adjusted earnings per share are expected in the range of 86 cents to $1.02 compared with prior year earnings of $1.11 in fiscal 2015. Previously it expected earnings to be in the range of 75 to 90 cents.
Guess? currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the apparel industry include Perry Ellis International Inc. PERY, Columbia Sports Inc. COLM and Oxford Industries Inc. OXM. While Perry Ellis sports a Zacks Rank #1 (Strong Buy), Columbia Sports and Oxford Industries carry a Zacks Rank #2 (Buy).
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