Shares of Guess Inc. moved lower in after-hours trading Wednesday as the Los Angeles-based sportswear firm posted better-than-expected second-quarter earnings but provided Wall Street with third-quarter guidance that fell short of analysts’ estimates.
In the three months ended July 30, net income attributable to Guess fell 9.1 percent to $60.7 million, or 65 cents a diluted share, from $66.8 million, or 72 cents, in the prior-year period. Excluding the expected $19.5 million impact of a pending settlement charge with an Italian logistics service provider, EPS came in at 84 cents, 3 cents better than the consensus estimate of analysts.
Revenues rose 17.3 percent to $677.2 million from $577.2 million a year ago as European and Asian revenues expanded 29.9 percent and 31.1 percent, respectively, to $288.8 million and $55.3 million. North American wholesale volume declined 0.9 percent to $43.9 million, while North American retail sales rose 8 percent to $261.1 million despite a 3.4 percent decline in comparable-store sales in local currencies, translating to 1.9 percent in U.S. dollars. Analysts expected revenues of $656.4 million.
Helped by favorable currency translations, lower markdowns in U.S. stores and the firm’s continuing shift to retail operations in Europe, gross margin grew to 44.3 percent of sales from 43.7 percent in the 2010 quarter.
Third-quarter guidance for revenues of $650 million to $665 million and EPS of between 71 cents and 74 cents fell shy of respective analysts’ estimates of $689.9 million and 85 cents.
Guess shares ended the trading day down 0.5 percent to $33.29 and fell another 4.2 percent to $31.68 in the hour following disclosure of the results as the equity markets closed.
Responding to an analyst’s question during the firm’s conference call, Paul Marciano, chief executive officer, said that the problem with the Italian service provider, which was involved with shipments to wholesale accounts, surfaced only last month. The relationship with the firm has been terminated.
Calling Brazil “a huge opportunity,” Marciano said the firm was in negotiations with three different parties which would pave the way for entry to the market but, because of a previous bad experience with a Brazilian licensee, it would only entertain arrangements giving it majority or total control of its operations in the South American nation.
For the first six months of the year, net income fell 11.7 percent to $103.3 million, or $1.11 a share, from $117.1 million, or $1.25. Revenues rose 13.7 percent to $1.27 billion from $1.12 billion as gross margin declined to 43.3 percent from 43.7 percent.
Dennis Secor, chief financial officer, said on the conference call that, so far in the third quarter, North American comps are down in the low-single digits “as we continue to reduce our emphasis on promotional events. We expect this general trend to continue throughout the quarter as our lean inventory position should enable us to continue to reduce our markdown sales in a profitable manner.”