Apparel retailer Guess?, Inc. (GES) reported mixed third-quarter fiscal 2015 results as earnings beat the Zacks Consensus Estimate, while sales missed the same. The company also lowered its fiscal 2015 guidance.
Guess? posted third-quarter earnings per share of 24 cents, down 42.9% from 42 cents in the year-ago quarter due to a weak top line and decline in consumer spending. Earnings, however, surpassed the Zacks Consensus Estimate of 18 cents by 33.3% and management’s expectation range of 15 to 20 cents.
Revenues and Margins
Revenues slipped 3.9% year over year to $589.6 million due to soft sales in most of the company’s segments. Additionally, soft traffic in Europe and tough retail conditions prevailing in the region affected revenues in the region. Top line also missed the Zacks Consensus Estimate of $596 million by 1.1% and management's expectation of $590 to $600 million marginally. On a constant currency basis, revenues fell 2.6%. Nevertheless, the company’s e-Commerce business performed well with 40% growth in North America.
Adjusted operating earnings slipped 50.1% to $24.9 million as against adjusted operating income of $49.8 million in the year-ago quarter. Operating margin shrank 390 basis points (bps) year over year to negative 4.2% due to higher store impairment charges.
Segment Results
The revenues from retail stores and e-Commerce sites in North American declined 4.2% to $243.2 million. Comparable store sales (comps) fell 4.8% due to lower mall traffic. Excluding the currency impact, comps slipped 3.5%.
The European segment's revenues decreased 5.5% to $189.9 million. On a constant currency basis, revenues declined 2.5% mainly due to unusual warm weather that lowered traffic.
The Asian segment's revenues fell 2% to $71.3 million, due to weak results in Greater China and South Korea, which offset positive results in Hong Kong and Macau. In constant currency, the segment's revenues slipped 5.1% y/y.
Net revenue in the North American Wholesale segment remained flat at $53.5 million as higher same-store buy was offset by closure of several wholesale partners. In constant currency, the segment's revenues increased 1.6% y/y.
Net revenue in the Licensing segment slipped 1.4% to $32.0 million from the prior-year period mainly due to decline in royalty.
Other Financial Updates
During third-quarter fiscal 2015 earnings conference call, Guess? announced a quarterly dividend of 22.5 cents per share payable on Jan 2, 2015 to shareholders of record at the close of business on Dec 17, 2014.
Weak Guidance for Fourth-Quarter Fiscal 2015
Management is not optimistic about the fourth quarter. Comps were soft in the early days of the quarter. So far in the fourth quarter, comps have been down in the mid single-digits and management does not expect it to improve in the rest of the quarter.
For the fourth quarter, the company expects revenues in the range of $695 to $710 million, lower than the year-ago revenues of $768.4 million. The company expects operating margin in the range of 9.5% to 11.5% versus 8.1% posted in fourth-quarter fiscal 2014. Earnings are expected in the range of 53 to 63 cents per share, much lower than 83 cents in the prior-year comparable quarter. The company’s expectations are lower than the Zacks Consensus Estimate of 70 cents. The cautious fourth-quarter outlook shows that revival in consumer spending will take time.
Lowered Guidance for Fiscal 2015
Guess? lowered the guidance for fiscal 2015 due to soft third-quarter results. The company now expects revenues in the range of $2.42 to $2.43 billion, down from $2.44 to $2.48 billion. Operating margin is expected within 5% to 5.5% versus 5.5% to 6%. Adjusted earnings are expected in the range of $1.00 to $1.10 compared with $1.05 to $1.20.
Guess? currently carries a Zacks Rank #4 (Sell). Some better-ranked companies in the apparel industry include Dollar Tree Inc. (DLTR), Ross Stores Inc. (ROST) and Bebe Stores Inc. (BEBE). All these stocks carry a Zacks Rank #2 (Buy).
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