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Guess Narrows Loss, Wholesale Stays Soft

Facing weakness in its wholesale unit, Guess Inc. reported a quarterly net loss that was narrower than a year earlier, but deeper than expected.

NEW YORK —?Facing continued weakness in its wholesale business, Los Angeles-based Guess Inc. reported a second-quarter net loss Wednesday that was slightly narrower than its deficit a year earlier, but still deeper than analysts had expected.

The firm reported a $5.4 million loss, or 13 cents a diluted share, for the quarter ended June 28. That compares with a $6.4 million loss, or 15 cents a share, the prior year. According to Thomson Financial First Call, analysts had expected a loss of 10 cents a share. This year’s loss included $500,000 in aftertax charges, which weighed down the per-share figures by a penny, said president and chief operating officer Carlos Alberini.

Revenue for the quarter was up 9.4 percent to $131 million. Heavy cost cutting, which reduced selling, general and administrative expenses to 36 percent of sales, from 41.6 percent, didn’t offset gross margin erosion.

“Our wholesale segment in particular continues to be a challenge, consistent with the overall industry,” Alberini said on a conference call with Wall Street analysts.

He cited heavy markdowns at the brand’s retail accounts and sales to discounters as the reason for margin erosion. He said the firm’s chain of 254 signature stores, which reported an 11.6 percent July comparable-store sales growth, performed well in the quarter.

Retail revenues were up 19.7 percent to $95.7 million, while wholesale sales fell 16.9 percent to $27.5 million. The retail unit reported operating income of $4.4 million compared with a $2.4 million operating loss a year ago, while the wholesale unit saw its loss deepen to $8.4 million from $688,000.

Alberini said he believed comps at Guess stores will rise by mid- to single-digit percentages in the second half, a slightly higher rate of growth than previously projected. At wholesale, he expects sales to drop in the third quarter and rise in the fourth, for an overall high- to single-digit annual decline.

The firm said Barneys New York chairman and ceo Howard Socol had stepped down from its board. Socol, who signed on prior to taking his post at the retailer, said, “It’s been difficult to get to the Guess board meetings, which are in California.” Guess said it has begun a search for a replacement.

This story first appeared in the August 7, 2003 issue of WWD.  Subscribe Today.