European Troubles Weigh on Guess

Shares tumbled more than 10 percent in after-hours trading as the company provided forward guidance that fell far short of analysts' expectations.

Shares of Guess Inc. tumbled more than 10 percent in after-hours trading Wednesday as the company provided guidance that fell far short of analysts’ expectations even as it reported fourth-quarter results that matched estimates.

This story first appeared in the March 15, 2012 issue of WWD.  Subscribe Today.

Hit by a 15.9 percent reduction in its European operating income, the Los Angeles-based denim and sportswear firm said that, in the three months ended Jan. 28, net income fell 7.2 percent to $95.9 million, or $1.05 a diluted share, identical to the analyst consensus estimate, from the year-ago level of $103.3 million, or $1.11. While down in Europe and flat in the company’s licensing segment, profitability improved for the company’s three other operating groups — North American retail, North American wholesale and Asia — as results benefited from a shift towards retail operations and an emphasis on full-price selling and inventory control.

Revenues were up 2.5 percent to $775.8 million, from $756.9 million. Sales rose 1.5 percent in the company’s largest segment, North American retail, to $343.5 million, but comparable-store sales declined 5 percent in the region.

The challenges of the struggling economies of Europe dominated the company’s presentation and figured prominently in its conservative guidance for the first quarter and full year. Dennis Secor, chief financial officer, noted that fourth-quarter comps in Guess-owned stores in Europe, which now number 179, declined in the high-single digits, even though new stores were able to offset that decline and produce retail gains in those markets.

Paul Marciano, vice chairman and chief executive officer, declared himself pleased with the quarterly results “considering what Europe went through this past holiday season….We saw the traffic fall off in early September and began to experience negative comps in our stores there.”

Yet he cited strong growth in less developed European markets, including Germany, Portugal, the Netherlands, Finland and Russia. European markets other than Italy accounted for 48 percent of European sales four years ago, but now represent 60 percent of sales. Despite the difficulties in Europe since the summer, overall sales there for the year surpassed $1 billion for the first time, rising 9.8 percent to $1.01 billion, slightly more than $100 million behind the dominant North American retail group.

Marciano noted the disparity between the hardest-hit southern European markets, where anxiety is so great “you can feel it and touch it,” and markets that appear to be almost impervious to the crisis, such as Germany, where “you don’t see any sense of that.”

The company provided guidance for earnings of between 25 and 28 cents a diluted share for the first quarter and between $2.50 and $2.65 for the full year, below respective consensus estimates of 48 cents and $3.18. Shares of Guess, down a fraction to $36.70 in trading Wednesday, shed $4.53, or 12.3 percent, in the two hours following the release of the fourth-quarter figures.

For the full year, net income pulled back 8.3 percent, to $265.5 million or $2.86 a diluted share, while revenues grew 8.1 percent to $2.69 billion.