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Guess Upbeat as Net Loss Grows

NEW YORK — Guess Inc. Wednesday tempered reports of a wider first-quarter loss with encouraging news about recent retail sales, its debt load and even its problematic performance with its wholesale accounts.<br><br>For the first quarter ended...

NEW YORK — Guess Inc. Wednesday tempered reports of a wider first-quarter loss with encouraging news about recent retail sales, its debt load and even its problematic performance with its wholesale accounts.

For the first quarter ended March 29, the net loss expanded to $5.8 million, or 13 cents a diluted share, from $3.6 million, or 8 cents, in the year-ago period. The results for last year include aftertax charges of $400,000 for restructuring, impairment and severance.

Gross profit as a percent of sales declined 310 basis points, to 29.6 percent, as the cost of goods sold went up the same amount, to 70.4 percent.

Net revenue increased 1 percent during the quarter to $139.6 million from $138.2 million as increases at retail and in licensing overcame continuing declines at the wholesale level. Retail sales rose 6.1 percent during the quarter to $83.7 million as comparable-store sales retreated 1.7 percent. Wholesale operations took an 8.8 percent hit, falling to $45.1 million, but licensing revenue was up 9.5 percent to $10.9 million.

As appears to be the case for many stores, the news about retail in April was significantly better than in the months immediately preceding it. Overall retail sales were up 17.2 percent to $36.6 million for the five weeks ended May 4, and comps increased 9.3 percent as the full-price retail stores advanced 5.6 percent on a comp basis, and factory outlets registered an eye-catching 19.6 percent comp gain.

Combining the March and April retail results, comps rose 2.8 percent.

On a conference call with analysts, Carlos Alberini, Guess’ president and chief operating officer, said, “We’re pleased with the current trends. Importantly, our product is also selling well in our wholesale accounts.”

In an interview, Alberini noted that Guess’ wholesale business has “stabilized” at about 800 doors. “We hope to see some growth, but we don’t expect it in the current [second] quarter,” he said. “We’ll be down for the total year at wholesale, but I expect that we’ll be up in the second half. Obviously, if you do the math, that means a lower first half.”

In its retail network, he is looking for low-single-digit comp increases in the second quarter, as well as the addition of perhaps a half-dozen new units. Guess has slated 15 to 20 new stores for the year, which would bring its total to more than 260. Capital expenditures for the year are budgeted at $18 million, including new stores.

Alberini said the wider loss and lower gross margin figures were attributable to lower initial markups, markdowns in stores, higher sales to stores in the off-price channel and the effect of lower comps on margins in its own store network.

While stopping short of predicting a profit in the second quarter, Alberini said he does expect gross margin improvement during the current period as wholesale performance stabilizes, off-price channel sales drop as goods are directed into its own stores, comps remain positive and the firm works with less outdated inventory.

He also noted during the call that recent changes made in its finances will help lower interest expense going forward.

In the first quarter, the retail unit had an operating loss of $6.5 million versus a $4.5 million loss in last year’s quarter; wholesale activities generated $260,000 in operating profit, versus $3.4 million, and licensing proved to be the cash cow with $8.9 million in operating profits against $7.6 million in last year’s quarter.