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Guess Net Hurt by Charge

Same-store sales and margins for Guess Inc. decline in fourth quarter.

Pinched by an impairment charge and lower margins and same-store sales, Guess Inc. late Tuesday posted lower fourth-quarter results, but finished the year with a stronger bottom line.

For the three months ended Jan. 31, income fell 13.2 percent to $47.9 million, or 52 cents a diluted share, from $55.2 million, or 59 cents, in the year-ago quarter. Excluding a noncash asset impairment charge of $22.3 million for long-lived assets connected with retail stores in North America and Asia, income in the current quarter would have been up 12.1 percent to $62 million, or 67 cents, which was 16 cents above analysts’ consensus estimates.

Total revenues rose 9 percent to $561.1 million from $514.6 million as sales, exclusive of royalties, rose 10.3 percent to $538.4 million from $488.1 million. Retail sales in the U.S. rose 6.5 percent to $288.6 million, although comparable-store sales were down 6.5 percent. Gross margin fell to 40.5 percent of sales from 45.4 percent in the prior-year period.

Paul Marciano, chief executive officer, told Wall Street analysts during a conference call that the company’s wholesale segment grew during the quarter, driven by South Korea and China, where Guess continues to invest with new stores. He said the company will keep expanding internationally, particularly since the brand is still “very underpenetrated” in markets such as Germany, Russia, Spain and the U.K.

Marciano noted the brands under the Guess umbrella are positioned to benefit from customers who are trading down from luxury brands that cost more.

Carlos Alberini, president and chief operating officer, said the firm has reduced its inventory position through a combination of initiatives that involve additional promotions at the store level and purchase-order cancellation.

“Every promotional event was planned to protect the integrity of our brands and benefit our most loyal customers,” he said.

In addition, the company has “strengthened” its supply chain and reduced lead times in many categories by “securing fabric ownership and strategic vendor entrepreneurships,” Alberini said.

He explained the company can respond quickly to market demands and at the same time protect its business and margin structure with less inventory risk.

For the year, income rose 14.5 percent to $213.6 million, or $2.28 a diluted share, from $186.5 million, or $1.99, in the prior year. Total revenues gained 19.6 percent to $2.09 billion from $1.75 billion.

The company forecasted diluted earnings per share at between 26 and 30 cents for the first quarter, below both analysts’ estimates and year-ago performance, but declined to project results for the remainder of the year due to the economic uncertainty.