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Guess Sees 3Q Profits Expand

Net income for Guess Inc. rose 9.9 percent in the third quarter to $64 million.

Swimming against the profit tide and reaping the benefits of a global business model in which growing international markets can help offset a softening North American cycle, Guess Inc. on Thursday posted its 21st consecutive quarter of earnings growth.

This story first appeared in the December 5, 2008 issue of WWD.  Subscribe Today.

However, the Los Angeles-based firm did fall into line with other branded apparel marketers and reduced full-year earnings guidance.

Net income for the third quarter ended Nov. 1 rose 9.9 percent to $64 million, or 69 cents a diluted share, from $58.3 million, or 62 cents, in the year-ago period. Revenues gained 12.5 percent to $527.9 million from $469.1 million. Revenues include an 11.9 percent increase in sales to $500 million from $446.7 million, with the balance from royalty gains.

Paul Marciano, chief executive officer, told Wall Street analysts that each of the firm’s business segments increased revenues during the quarter. The retail segment rose 12 percent, although comparable-store sales inched down 0.8 percent compared with a 15.8 percent comp gain a year ago.

“The profitability of the North American retail business was negatively affected by a decline in customer traffic and a highly promotional environment,” the ceo said.

Carlos Alberini, president and chief operating officer, said on the call, “During November, we continued to experience lower customer traffic and operated in a highly promotional environment, which impacted our gross margin considerably. We closed November with a comp-store sales decline in the midsingle-digits range, or negative low-single digits in constant dollars.”

Gross margin eased to 45.8 percent of revenues from 46.6 percent in last year’s quarter.

Alberini noted that the “prevailing conditions in this marketplace limit our visibility into the holiday season’s business.”

In contrast to the North American business, Alberini said the company expects revenues from the European business to grow more than 20 percent in euros, translating to low-single-digit growth in U.S. dollars.

Alberini also said the company expects to gain more visibility over the next several weeks to enable it to better plan for the next fiscal year and that Guess will provide next year’s guidance when it releases fourth-quarter and year-end results in March.

Meanwhile, the firm has 17 new stores planned for North America and three in Europe, but otherwise expects to open new stores at a slower pace than in 2008 and next fiscal year will incur capital expenditures at a level below this year, as well.

“With respect to capital deployment, we will protect our cash flow-generation power and carefully deploy capital based on return opportunities. We remain committed to maintaining a strong capital structure with little or no debt,” Alberini said.

For the nine months, income jumped 26.2 percent to $165.7 million, or $1.77 a diluted share, from $131.3 million, or $1.40, last year. Revenues grew 24 percent to $1.53 billion from $1.24 billion, which included a 24.2 percent gain in sales to $1.45 billion from $1.17 billion.

The company said it expects fourth-quarter diluted earnings per share in the range of 50 to 55 cents on projected revenues of between $500 million to $540 million. For the full year, diluted earnings are expected at $2.27 to $2.32, with projected revenues ranging from $2.03 billion to $2.07 billion. The prior guidance, issued in September with second-quarter results, pegged diluted earnings at between $2.47 to $2.53. Since then, consumer confidence has slipped amid ongoing volatility on Wall Street.