Guess Inc.’s first-quarter profits topped expectations, but fell 15.2 percent as costs related to the denim and sportswear firm’s retail expansions in Europe and the U.S. overwhelmed the benefit of stronger sales, particularly in Asia.

This story first appeared in the May 26, 2011 issue of WWD. Subscribe Today.

Paul Marciano, chief executive officer, said international expansion was the company’s “number-one priority” and that the Guess brand had room to grow given strong consumer awareness across urban markets in Germany, Spain and France. The Los Angeles-based firm is well on track to exceed $1 billion in European revenues this year.

In the first quarter, profits attributable to the firm fell to $42.7 million, or 46 cents a diluted share, from $50.3 million, or 54 cents a year earlier. Earnings were 2 cents ahead of analysts’ consensus estimate.

Revenues for the quarter ended April 30 rose 9.8 percent to $592.2 million from $539.3 million. Gross profit margins fell to 42.1 percent of revenues from 43.6 percent a year earlier and sales, general and administrative expenses rose to 30.1 percent of revenues from 29.3 percent.

Marciano told analysts on a conference call that the women’s apparel business in its retail stores was “challenging” as the firm worked through soft customer traffic and slow-moving product that was left over from the fourth quarter.

In North America, retail sales rose 5 percent to $247.5 million, with comparable-store sales down 3.1 percent. North American wholesale revenues increased 6.8 percent to $45.6 million.

European revenues increased 12.4 percent to $210.2 million.

But it was the smaller, Asian division that showed the strongest growth, with revenues up 23.7 percent to $60.1 million. The region could continue to produce much of the firm’s momentum, with 56 Guess stores slated to open in China this year.

“China, of course, is the most important strategic initiative of our company history, where the possibilities of development seem to me to be endless if properly funded, structured, strategized and executed,” Marciano said. “We have seen a dramatic result when we did exactly that in Europe in the last six years.”

Guess reaffirmed its annual profit forecast of $3.30 to $3.50 a share. The company has 484 stores in North America and 937 elsewhere.


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