Guess Inc. is getting ready to put its tangle with the European antitrust authorities behind it — but not before paying a hefty fine that could top out at 40.6 million euros.
The charge related to that expected fine wiped out the company’s profits for the third quarter. At the same time, Guess posted solid sales expansion and projected annual revenue growth in the double digits — a threshold the company hasn’t crossed in eight years.
The European Commission started a formal antitrust investigation into Guess in June 2017, looking into whether the brand was illegally restricting retailers from selling to consumers in the European Union.
Guess said Wednesday it has made “certain changes to its business practices and agreements in response to these proceedings” and expects to reach an agreement to close the matter and pay a fine.
That fine is projected to be at least 37 million euros and led to a charge in that amount during the third quarter. The fallout from the case weighed heavily on the company’s quarter.
Net losses widened to $13.4 million, or 17 cents a diluted share, from $2.9 million, or 4 cents, a year earlier. Adjusted earnings, however, inched up to $10.6 million from $10.4 million.
Revenues for the quarter ended Nov. 3 rose 10.3 percent to $605.4 million from $549 million. The company’s wholesale business in the Americas as well as its operations in Europe and Asia saw double-digit sales increases.
Revenues for the brand stores in the Americas dipped 0.1 percent after shuttering 15 doors over the past year to have 450 stores. The division saw a 3 percent comparable sales increase.
Chief executive officer Victor Herrero told analysts on a conference call that the company’s “turnaround is gaining momentum” and called out the progress in its Americas retail efforts.
“Revenues for the quarter [in stores in the Americas] finished almost flat…this is a very strong result considering the significant number of stores we have closed since the same time last year,” he said. “We were significantly less promotional than last year with higher [average unit retail prices] and better conversion driving the comp.”
Herrero has spent three years working to turn around the company and is enjoying some of the fruits of that effort.
The ceo pointed to several areas of improvement.
• Store associates are able to deliver better service by having a “deep knowledge of products.”
• Celebrity partnerships are helping connect the brand with consumers.
• In-store displays are stronger.
• Associates are sending customer feedback directly back to product managers for a “seamless flow of information that is incorporated into the product development cycle.”
“At the end, it isn’t any one thing that drives this strategic initiative, but a number of small elements that combine to have a collective impact of our sales performance,” he said.