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Guess Inc. Upbeat Despite Income Drop in Q3

Sales in Asia are up 15.5 percent and company is plotting expansion into Japan and Brazil.

Paul and Maurice Marciano

Guess Inc. saw its shares pick up in after-hours trading Wednesday despite lower third-quarter earnings as it declared a special dividend and issued a fairly upbeat fourth-quarter forecast.

This story first appeared in the November 29, 2012 issue of WWD.  Subscribe Today.

The Los Angeles-based jeanswear and sportswear firm also said it planned to enter the Brazilian market through a joint venture with an undisclosed partner and reenter the Japanese market on a direct basis. Paul Marciano, chief executive officer, told analysts on a late afternoon conference call that current plans for Brazil are for between 10 and 20 freestanding stores in the next two to three years with the first store expected to open in São Paulo next June.

In the quarter ended Oct. 27, net income fell 44 percent to $37.5 million, or 43 cents a diluted share, from $66.8 million, or 71 cents, in the year-ago period. The company just missed the analyst consensus estimate for earnings per share of 44 cents.

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Revenues were down 2.2 percent, to $628.8 million from $642.8 million. A 15.5 percent sales gain in Asia, to $74.8 million, and a 1 percent increase in its North American wholesale operations, to $57.9 million, were more than offset by declines in Europe (down 8.4 percent to $202.6 million), licensing (down 7.6 percent to $31.5 million) and North American retail (down 1.4 percent to $262.1 million). Operating income was down for all five business units, led by a 57.3 decline in Europe, to $14.6 million. Same-store sales in North America, where the company operates 513 units, were down 6 percent. Gross margin descended to 38.4 percent of sales from 42.9 percent a year ago.

The company projected fourth-quarter EPS of between 85 and 95 cents, against earlier analysts’ estimates of 95 cents, and revenues of $780 million and $800 million, versus average expectations of $789.2 million.

In addition to a regular cash dividend of 20 cents a share, the firm declared a special cash dividend of $1.20 a share at the same time it said it had engaged in no stock buybacks during the third quarter and planned none in the fiscal year’s final three months. The dividends are payable Dec. 28 to shareholders of record Dec. 12.

For the nine months, net income dropped 37.5 percent, to $107.6 million or $1.21 a diluted share, as revenues fell 3.6 percent, to $1.84 billion.

The company said it was seeking a successor to Dennis Secor as chief financial officer but not for Michael Prince, its chief operating officer. Prince has left the firm and Secor is scheduled to do so on Dec. 7.