By  on August 26, 2009

Booming sales in its European operations coupled with cost reductions lifted Guess Inc. to record sales and earnings during the second quarter.

For the three months ended Aug. 1, the Los Angeles-based company saw earnings rise 10.6 percent to $59.6 million, or 64 cents a diluted share, compared with earnings of $53.8 million, or 56 cents, in the same period a year ago.

Revenues gained 1.4 percent to $522.4 million from $515.2 million. Sales increased 2.3 percent to $500.4 million from $489 million. Royalties fell 15.9 percent to $22.1 million from $26.2 million.

“We definitely feel that conditions have stabilized in a number of ways, but that doesn’t mean the crisis is over and there is no doubt there are challenges ahead,” Paul Marciano, chief executive officer, said during a conference call with analysts.

Marciano traced much of the quarter’s success to the aggressive steps management took after last year’s holiday season to lower inventories and reduce costs. He noted Guess was able to increase its product margins in North America and Asia as a result.

The company’s European business led all segments, with revenues rising 20.6 percent to $210.2 million from $174.2 million. The bulk of this gain came as a result of the company’s decision to offer a pre-collection in a bid to get European retail buyers to shift from their traditional habit of placing orders only twice a year to four times a year. That effort was successful, but will have ramifications in the third quarter. The sales shift boosted second-quarter results by some $29 million, or 9 cents a share, when management had expected an increase of between 3 and 4 cents a share.

Marciano said global retail expansion will continue to be a priority. Management believes the European market remains underdeveloped, but now has the infrastructure in place to support rapid growth. The company also is looking to achieve strong growth in emerging markets. However, Marciano said there were “multiple challenges” in Asia and management would be cautious when considering major investments.

“Today’s results validate the potential of the Guess brand on the international stage,” said Marciano.

Retail operations saw revenues fall 6.1 percent to $227.5 million from $242.4 million. The wholesale segment saw revenues drop 13.3 percent to $62.7 million from $72.4 million.

In an interview with WWD, Carlos Alberini, president and chief operating officer, said over the last year customers have significantly altered their shopping habits. They are, understandably, shopping less frequently and are motivated solely by special events. The company has sought to take advantage of this change.

“We are trying to concentrate on high-traffic periods and serving the customer well during those periods,” said Alberini.

A customer loyalty program that has 1.6 million members is proving an invaluable tool to create events that can draw consumers out. Alberini said strong performing women’s categories have included denim, accessories, sweaters, handbags and knit tops. The men’s offering has been among the most challenged by the economic conditions.

For the first half of the year, earnings declined 9.4 percent to $92.1 million, or 99 cents a share, compared with earnings of $101.6 million, or $1.07 a share. Revenues fell 4.1 percent to $963.6 million from $1 billion. Sales were down 3.7 percent to $919.5 million compared with sales of $954.7 million, and revenues from royalties fell 11.2 percent to $44.1 million from $49.7 million.

The European business was the lone segment to eke out a gain in the half, with revenues up 0.8 percent to $355.9 million from $352.9 million. Retail revenues fell 4.2 percent to $435 million from $454.3 million, while wholesale revenues slumped 12.8 percent to $128.6 million from $147.5 million.

Management said that given the volatility of the global market it would not provide a revenue and earnings forecast for the full year. However, it did note the company’s board of directors had approved a 12.5 cents a share increase in the quarterly cash dividend, representing a 25 percent increase. The dividend will be payable to shareholders of record as of the close of business on Sept. 9.

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