Shares of Guess Inc. jumped more than 10 percent in after-hours trading late Thursday following disclosure of a smaller-than-expected first-quarter earnings decline and a hint of optimism about the company’s North American retail and European operations.
Both business units suffered operating losses and revenue declines in the first quarter ended May 4, when the company saw net income drop 62.8 percent to $9.9 million, or 12 cents a diluted share, from $26.6 million, or 30 cents, in the year-ago period. Adjusted earnings per share were 14 cents, 6 cents better than Wall Street expected and above the range of 5 to 10 cents projected by Guess in March.
Revenues were off 5.2 percent, to $548.9 million from $579.3 million, with North American retail net sales off 5.4 percent, to $238.3 million, and same-store sales in the U.S. and Canada down 9.8 percent. European sales were down 12.9 percent to $165.4 million.
Profitable one year ago, the two businesses, which accounted for nearly 78 percent of quarterly revenues, had operating losses of $4.2 million and $5.2 million, respectively, contributing to a steep decline in corporate gross margin, down 460 basis points to 36 percent of sales.
Paul Marciano, chief executive officer, said that recent management and merchandising changes should augur well in an improving North American market and held out hope that its hard-pressed business in southern Europe was poised for at least a partial rebound.
Guess’ performance has been strong in markets including Germany, Russia and the Middle East, but consumers in Italy and France remain “cautious…nervous, apprehensive,” Marciano said.
But he told a late afternoon conference call, “We believe that things should turn around” in the third quarter in Europe and said he and his team were “much more hopeful” about the prospects in Italy and France during the back half of the year.
Guess shares closed Thursday at $29.35, up 0.7 percent, but took off following the earnings report, adding $3.13, or 10.7 percent, in after-hours trades to reach $32.48.
The Los Angeles-based firm’s revenue guidance for the second quarter of between $620 million and $635 million was stronger than the $618.4 million previously anticipated, on average, by equity analysts. The consensus estimate for EPS was 36 cents, the midpoint of Guess’ guidance of between 34 and 38 cents.
Marciano underscored that Guess would face difficult market conditions throughout the year. “The near-term outlook for consumer spending remains soft and we are planning our business accordingly,” he said. Fittingly, the company cut its selling, general and administrative expenses 6.2 percent in the first quarter, to $183.8 million.
Elaborating on the company’s plans to emphasize lower price points for jeans in its stores, Russell Bowers, chief financial officer of North American retail, said that about half the denim wall in Guess stores this fall would carry a price point of $79 with substantial representation of other sub-$100 price points as well.
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