Guess Inc.‘s third-quarter profits fell and missed Wall Street estimates Wednesday as chief executive officer Victor Herrero opened the door to store closures and other changes to boost the bottom line.
For the third quarter ended Oct. 29, net income fell 26.8 percent to $9.1 million, or 11 cents a diluted share, from $12.4 million, or 15 cents, a year ago. Net revenues rose 2.9 percent to $536.3 million from $521 million, which included a 3.9 percent gain in sales to $512.6 million. The balance of revenues came from royalty income. Retail comp sales in the quarter, including e-commerce, fell 4.9 percent.
The company’s results were at the low-end of its guidance and missed Wall Street’s mark. Analysts on average were expecting diluted EPS of 14 cents on revenues of $548.4 million.
Herrero said that the company’s revenue-enhancement initiatives helped to increase third-quarter revenues by 3 percent.
“We enjoyed strong double-digit growth in Europe and Asia, and we remain focused on improving our profitability in North America,” he said.
The ceo added that the European wholesale order book for spring finished up 1 percent, marking the second-consecutive season of growth in the European wholesale business. He added that in Asia, revenues finished up 10 percent, driven by new store openings and positive comp-store sales in China.
But the retail landscape remains challenging in the Americas and the company has identified a four-point plan to drive the value of the company’s business, the ceo said. That plan includes: Continuation of negotiations for rent reductions whenever possible; closure of unprofitable stores unless new rent terms make them profitable; continuation of supply chain initiatives, including vendor consolidation, fabric platforming and source country diversification, and enhancement of digital capabilities to help set itself apart from competitors.
During the company’s conference call with Wall Street analysts, Herrero said of its Americas business, “The number of units sold is flat to last year. The reduction in revenues is not due to selling less product, [but] rather due to lower average unit prices, due mostly to warm weather in North America.”
He also said that the company’s sourcing network now includes suppliers in Bangladesh, emphasizing that the inclusion is without any sacrifice in quality of product. He also said the company is close to the end of its transition year, which included establishing its four-point plan.
For the fiscal year ending Jan. 28, the company forecast adjusted EPS of 42 cents to 52 cents.
The ceo said the previous full-year guidance, calling for adjusted EPS of 62 cents to 75 cents, “assumed better comps and gross margins in the Americas retail segment for the fourth quarter than we are now expecting based on our third-quarter results and trends so far in the fourth quarter.”
Shares of Guess on Wednesday closed down 1.5 percent to $15.32 in New York Stock Exchange trading. The company reported earnings results after the markets closed.