Guess?, Inc.’s (GES) first-quarter fiscal 2014 earnings of 14 cents per share slumped 53.3% from the year-ago earnings of 30 cents due to lower consumer demand and macroeconomic headwinds, especially in Southern Europe. Earnings, however, beat the Zacks Consensus Estimate of 8 cents by 75% and exceeded the company’s own guidance of 5 cents to 10 cents.
Revenues and Margins
Revenues in the quarter slipped 5.2% to $548.9 million due to lower sales at North American retail and European segments. Revenues exceeded the Zacks Consensus Estimate of $543.0 million, but it was within the management’s expectation of $545.0 million to $560.0 million. However, excluding the currency impact, revenues increased 5.2%.
Operating earnings declined 65.1% to $13.7 million compared to $39.1 million in the year-ago quarter. The operating margin shrank 430 basis points (bps) year over year to 2.5% in the first quarter. The drop was the result of lower sales in European wholesale business, negative same-store sales and increased promotional expenses in the North American retail business.
Segment Results
The North American stores generated revenues of $238.3 million in the first quarter, down 5.4% from the prior-year quarter. Comparable store sales shrank 9.8% from the year-ago quarter, due to unfavorable weather in the initial months of the quarter. However, after March, the weather improved and Easter boosted sales, which partially offset the softer results in the initial months.
The European segment’s revenues slipped 12.9% to $165.4 million in the fourth quarter, due to macroeconomic headwinds in Southern Europe and extremely cold weather in the region which affected the sales of Spring. Excluding the currency impact, segment revenues slipped 12.4%.
The Asian segment’s revenues increased 9.7% to $71.1 million, driven by a double-digit growth in the South Korean and the Greater China businesses. Excluding the currency impact, segment’s revenues increased 8.0%.
Net revenues in the North American Wholesale segment were slightly down at $43.8 million versus $43.9 million in the prior-year period.
Net revenues in the Licensing segment climbed 4.7% to $30.3 million from $28.9 million in the prior-year period.
Balance Sheet and Cash Flow
Guess? ended the fourth quarter of 2013 with cash and cash equivalents of $306.4 million compared with $329.0 million in the previous quarter. Long-term liabilities stood at $212.2 million compared with $216.2 million in the prior quarter.
On May 30, 2013 Guess? approved a quarterly cash dividend of 20 cents per share payable on Jun 28, 2013 to shareholders of record at the close of business on Jun 12, 2013.
Guidance
For the second quarter of fiscal 2014, the company expects revenues in the range of $620 million to $635 million, operating margin in the range of 7.0% to 8.0% and earnings in the range of 34 cents to 38 cents per share.
For 2014, the company expects earnings in the range of $1.70 to $1.90 per share, which is narrower than the band of $1.70 to $1.94 per share as announced previously.
Net revenues are expected in the range of $2.57 billion to $2.61 billion instead compared with the earlier range of $2.60 billion to $2.64 billion. Operating margin is now expected in the range of 8.5% to 9.5%.
The Zacks Consensus Estimate is pegged at 37 cents and $1.96 per share for the second quarter and fiscal 2014, respectively. Therefore, the fiscal 2014 guidance was clearly disappointing.
Conclusion
Guess? posted a decent first quarter with the bottom line surpassing the Zacks Consensus Estimate. However, low comparable store sales due to macroeconomic uncertainty restricted revenue growth.
Guess? currently carries a Zacks Rank #4 (Sell). Other stocks in the retail and wholesale sector worth considering include Fortune Brands Home & Security Inc. (FBHS), Haverty Furniture Companies Inc. (HVT) carrying a Zacks Rank #1 (Strong Buy) and The Buckle Inc. (BKE) carrying a Zacks Rank #2 (Buy).
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