Hit by currency fluctuations, Guess Inc. on Wednesday reported an 11.4 percent drop in profits on a 1 percent increase in sales for the fourth quarter ended Dec. 31.
Net income for the quarter fell to $47.8 million, or 57 cents a diluted share, down from $53.9 million, or 63 cents, a year ago. While within the company’s earlier guidance, the profits missed the FactSet estimate for earnings of 58 cents a share. Guess said the negative impact of currency on earnings was equal to about 19 cents a share.
Sales for the three months ended Jan. 30 increased to $101 million from $100 million a year earlier. Retail comp sales including e-commerce decreased 1 percent, again hit by currency. In constant currencies, North American retail comps were positive while Europe achieved positive retail comps in the high single-digits.
For the quarter, the company’s net earnings decreased by 5.5 percent to $658 million from last year’s $696 million, which was higher than the FactSet estimate of $657 million. Europe revenues dropped by 5 percent and Asia fell by 18 percent, while Americas retail revenues declined 3 percent.
For the full year, net earnings were $81.9 million, a decrease of 13.4 percent from last year’s $94.6 million. Total net revenue for fiscal 2016 was $2.2 billion, a decrease of 8.7 percent from last year’s $2.42 billion.
“There is still more work to be done, but I am convinced that the initiatives we have started to implement in the last few months have contributed to these encouraging results,” said chief executive officer Victor Herrero.
Herrero said on the earnings conference call that he plans to grow annual revenues from $2.2 billion to $3 billion in three years, which is an annual growth rate of 11 percent. He plans to achieve this through e-commerce and new store openings. The goal over the next three years is to open 60 stores in the Americas, 140 stores in Europe and 200 stores in Asia. This is roughly a 50 percent growth over the approximately 800 stores the brand currently operates. Analysts questioned the significant shift from store closures to store openings and asked Herrero several times about the change.
“It sounds a pretty audacious aggressive plan you’re rolling out here for the next three years,” said Eric Beder of Wunderlich Securities. “I know before Victor joined that you would actually be closing stores in the U.S. and kind of that was the thought process in the U.S.”
On top of that, the company still expects to face currency headwinds and softness in tourist stores. As a result, looking ahead, Guess expects net revenues to decline by between 1.5 percent and 0.5 percent for the first quarter. Currency headwinds are forecast to negatively impact revenue growth by 2 percent. Diluted earnings per share are forecast to be in the range of negative 17 cents to negative 20 cents a share.
Full year expectations are for net revenues to increase between 7 percent and 9 percent, with diluted EPS in the range of 65 cents to 85 cents a share.
Guess has closed 38 stores over the past year and approved a cost reduction plan to streamline its operational structure and reduce expenses. The plan is expected to generate $25 million in annualized operating cost savings.
Herrero stressed that investors should understand that the next year will be a transition year and that even though the next two quarters will be disappointing, the company would still meet the three-year plan.
Guess reported results after the market closed, but the company’s outlook for the year sent shares falling by 10 percent in after-market trading to $19.