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Guess Weighs Omnichannel Shift

The company on Thursday reported a first-quarter loss that was smaller than expected by analysts.

Guess Inc. aims to boost its omnichannel capabilities.

This story first appeared in the May 30, 2014 issue of WWD.  Subscribe Today.

Speaking late Thursday after the company reported a first-quarter loss that was smaller than expected by analysts, Paul Marciano, chief executive officer, signaled that the Los Angeles-based jeanswear and sportswear giant could be preparing to de-emphasize brick-and-mortar retail in the same way that it began to favor the retail arena over wholesaling about 15 years ago.

“Omnichannel remains our key strategic initiative with a very big growth potential for many years to come,” he told analysts on a conference call. “We continue to develop our branded Web site as a key destination for our customers across all regions and we continue to make great progress there in North America and Europe.

“While we have a strong footprint in brick and mortar, the strategy going forward is to productively allocate our capital to not renew stores that don’t meet our financial requirements and build our omnichannel initiatives,” he continued. “We’re in a very different environment than we have seen in the past and really are focused on being much more productive.”

In Guess’ North American retail segment, revenues dropped 4.2 percent to $228.3 million, with comparable sales off 4 percent despite 49 percent growth in e-commerce, according to Sandeep Reddy, chief financial officer. The steepest drop in Guess’ four main business segments was in North American wholesale, down 10.3 percent to $39.3 million.

During the three months ended May 3, the net loss was $2.1 million, or 3 cents a diluted share, versus net income of $9.9 million, or 12 cents, in the first quarter of 2013. On average, analysts expected a loss of 7 cents a share.

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Unlike the bottom line, revenues fell short of expectations, declining 4.8 percent to $522.5 million from $548.9 million, below the $526.4 million analysts’ consensus estimate.

Gross margin fell to 33.7 percent of sales from 36 percent a year ago, and the loss was tempered by a 1.5 percent cut in the cost of sales, to $346.3 million, and a 3 percent decline in selling, general and administrative costs, to $178.2 million.

Although Guess hasn’t disclosed its e-commerce revenues on a quarterly or annual basis, their growing impact is suggested by previous statements by the company. In its 2013 annual report, Guess said that comparable sales in the North American retail segment last year fell 3.7 percent when measured in U.S. dollars, a figure that, without e-commerce, would have been down 5.3 percent.

The retail footprint mentioned by Marciano has grown to 491 directly operated stores in the U.S. and Canada and 350 directly operated stores in Europe, Asia and Latin America. The firm will open its first three doors in Japan during the second quarter and has three stores in operation in Brazil. It plans an additional 10 stores in the Middle East this year to lift the total there to 100.

Second-quarter guidance was for revenues of $615 million to $630 million and earnings per share of between 25 and 30 cents a diluted share. Consensus estimates before the first-quarter report were for EPS of 39 cents on revenues of $625.1 million. While quarterly guidance was below estimates, full-year guidance was in line with them. Guess expects full-year revenues of $2.53 billion to $2.57 billion and EPS of $1.40 to $1.60. Analysts projected EPS of $1.52 on revenues of $2.54 billion prior to the first-quarter results.