The apparel, accessories and footwear retailer revealed earnings Wednesday after the market closed, improving on top and bottom lines compared with the same time last year. But an outlook predicting more downward trends to come — and quarterly revenues below pre-pandemic levels — caused company shares to nosedive more than 6 percent in after-hours trading.
Still, Carlos Alberini, chief executive officer, said he was pleased with the company’s progress, which exceeded expectations.
“Compared to the second quarter of fiscal 2020, the [like-for-like pre-pandemic] period, we expanded operating margin by over 700 basis points to 13.9 percent,” Alberini said in a statement. “Our revenues for the quarter finished down 8 percent, versus the [like-for-like pre-pandemic period in 2019.] The entire decline was due to a timing shift of European wholesale shipments into the third quarter and the impact of permanent store closures. We achieved this result in spite of the pandemic and being significantly less promotional in all of our direct-to-consumer businesses. Our operating profit growth was strong, up 90 percent compared to the [like-for-like pre-pandemic period.] This resulted in earnings per share of $0.91, versus $0.35 in the [like-for-like pre-pandemic] period.
“Based on our progress, we now expect to deliver our 10 percent operating margin goal in the current year and are raising our expectations to reach 12 percent by fiscal year 2024, which would yield a return on invested capital of over 30 percent and adjusted earnings per share of around $3.50,” the CEO continued. “The Guess brand has significant white space for revenue growth and we are confident in our ability to reach our $2.8 billion revenue target by fiscal 2024. We continue to prioritize returning value to our shareholders and announced today that our board has approved an increase of our existing share buyback program to $200 million.”
For the three-month period ending July 31, total revenues were $628 million, up from $398 million a year ago, but down from $683 million in 2019’s pre-pandemic second quarter.
Alberini said the surge in revenues in the most recent quarter was thanks to fewer promotional sales and more full-priced selling.
“We’ve reduced promotional activity everywhere,” he told analysts on Wednesday evening’s conference call. “This company will never go back to the level of promotions that it had pre-pandemic.”
Guess logged a profit of $63.1 million, compared with losses of $20.6 million a year earlier, as a result.
Meanwhile, in-store traffic remains challenged across all regions, with the steepest declines in retail in Asia (down 43 percent for the quarter, year-over-year.) Executives said almost half of the declines in the region were caused by store closures.
“It has been challenging with traffic,” Alberini said on the call, adding that Guess is currently in the process of making leadership changes in its Asian business, which is concentrated in China, Japan and South Korea.
“China has been a challenge for us,” he said. “We’re [working on] improving the product assortment; a lot less promotional. Also, the store portfolio. We’ve closed nearly 70 stores in China over the last 18 months. The franchise model works for us. In marketing, influencers are very difficult and costly to do. But we’re working on that. E-commerce has been challenging for us, too, because we decided to be a lot less promotional.”
But he added, “We have a lot of confidence that we’re on the right path.”
Higher AURs, or average selling prices, as well as e-commerce throughout the company, have helped offset losses. Other tailwinds include the American wholesale business, which was up 19 percent, compared with 2019’s pre-pandemic levels. By category, activewear, denim and knits were growth drivers.
The company anticipates revenues in the current quarter to be slightly negative to flat, compared with the same time a year earlier. For the full fiscal year, assuming no further COVID-19-related shutdowns, Guess expects revenues to be down in the mid-single digits, year-over-year, with operating margin reaching about 10 percent.
The retailer ended the quarter with 1,597 stores, nearly $459 million in cash and cash equivalents and nearly $80 million in long-term debt.
Shares of Guess, which closed down 1.23 percent Wednesday to $24.15 a piece, are up approximately 114 percent, year-over-year.