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Guess Has Conservative Take on 2014

The company issued a cautious guidance for the year ahead despite strong results in its growing e-commerce business.

Guess Inc. disappointed investors late Wednesday with cautious guidance for 2014 despite signs of a pickup in business in southern Europe and strong results in its growing e-commerce business.

Shares of the Los Angeles-based denim and sportswear firm fell 5.8 percent, to $27.09, in early after-hours trading after the firm provided first-quarter and 2014 guidance that fell well short of Wall Street’s expectations.

The company provided first-quarter guidance for a loss of between 5 and 9 cents a diluted share and revenues of between $520 million and $535 million. Analysts on average expected earnings of 11 cents a share and revenues of $550.1 million.

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“We still expect sales in our more developed businesses to be under pressure, especially in our own stores in North America and our European wholesale channel,” said Paul Marciano, chief executive officer. “We will continue to invest in new markets like Japan and Brazil as well as fully execute our omnichannel strategy.”

Signs of progress in e-commerce were among the most touted steps forward for Guess in the fourth quarter. Although dollar amounts weren’t provided, Marciano told analysts on a conference call that the North American e-commerce business grew 28 percent in 2013, with a higher level of growth — 34 percent — coming in the second half.

Although fourth-quarter revenues in Europe fell 4.4 percent to $287.1 million, the decline was driven by weakness in wholesale. Guess officials were encouraged by a low-single-digit comparable-store sales advance in its European units, its first improved comp in the region after 10 straight quarters of declines. While Italy’s comps were down, they moved ahead in France and Spain.

“So far in the first quarter, we’re seeing positive comps in all three countries, including Italy,” Marciano said, later noting that wholesale conditions in Europe remain difficult, with sales in the new year expected to decline in the low teens.

Michael Relich, chief operating officer, said on the conference call, “Currently, with the orders we have on hand, we are seeing an improvement in trend in southern Europe with a slowdown in Russian growth due to the softening economic environment there. We are not planning for any notable improvement in the back half of the year.”

In the fourth quarter ended Feb. 1, net income fell 4 percent to $69.6 million, or 82 cents a diluted share, from $72.6 million, or 87 cents. On an adjusted basis, earnings per share was 83 cents, 3 cents better than the result expected, on average, by analysts tracking the firm.

Revenues declined 5.7 percent to $768.4 million in the quarter from $815.1 million in the comparable period of 2012, with North American retail revenues off 6 percent, to $329 million, and comparable sales for the division down 6 percent. Gross margin eased to 39.3 percent of revenues, from 40.8 percent in the final quarter of 2012.

Marciano pointed out that a short holiday season, poor traffic, wintry weather and unprecedented levels of promotion hurt Guess during the period. But cold, snowy conditions heightened demand for a number of categories for which the company had insufficient stock, including outerwear, sweaters and its signature product, jeans.

He cited a number of products in the young contemporary sphere, including dresses and denim, as performing well.

For the full year, net income contracted 14.2 percent to $153.4 million, or $1.80 a diluted share, on a 3.3 percent decline in revenues, to $2.57 billion.

The company’s cash and cash equivalents ended the year at $502.9 million, 52.9 percent above the year-ago level. Guess increased its quarterly dividend, payable April 18 to shareholders of record April 2, to 22.5 cents a share from its previous level of 20 cents.