Guess Inc. saw a decline in third-quarter earnings, but still managed to come in ahead of expectations with signs of life in its European retail business.
The denim company’s net earnings fell to $12.4 million, or 15 cents a share, as the negative impact of currency translation cut EPS by 13 cents. A year earlier, earnings totaled $20.8 million, or 24 cents.
Despite the decline, earnings per share came in 4 cents better than the 11 cents analysts projected and shares of Guess increased 3.8 percent to $20.29 in after-hours trading.
Revenues for the three months ended Oct. 31 decreased 11.7 percent to $521 million from $589.8 million, a drop of 4 percent in constant currency. That included a 7 percent drop in the Americas retail business, a 12 percent decrease in the Americas wholesale business, a 15 percent decline in Europe and a 17 percent decline in Asia, without taking currency into account.
Victor Herrero, chief executive officer, said the results were “better than our expectations” and noted that, “our European retail business was especially strong with a double-digit [comparable] sales increase for the quarter for the first time in five years.”
Guess tapped Herrero, a former Zara executive, for the top job in July and he is starting to put his imprint on the denim brand, working to elevate the “quality of our sales and merchandising organization,” build the Asian business and to “reinforce a culture of purpose and accountability.”
The ceo said: “I am laser-focused on driving the organization to raise the level of execution, as this will be a critical enabler of successful achievement of our strategies.”
Some of Herrero’s thinking is starting to reshape the stores.
“One of the big changes that we have already started to make is to ensure that the visual merchandising in our windows and in our stores is more commercially focused to ensure that the displays emphasize bestsellers and diversity of categories in our lifestyle brands,” Herrero told analysts on a conference call. “The most crucial element of store management is to ensure that replenishment of product is a top priority. The key to this is to be in full control of the stockroom in every store to make sure that product from the stockroom moves to store shelf very quickly, and at the same time needs for replenishment are communicated to corporate headquarters.”
For the fourth quarter, Guess expects earnings per share of 53 cents to 62 cents, opening up some upside possibility to the 59 cent profit analysts had penciled in. Revenues are expected to range from down 1.5 percent to up 1.5 percent in constant currency.
Comp sales in Europe are expected to continue to lead the company in the fourth quarter, rising by midsingle digits in constant.
Chief financial officer Sandeep Reddy said that the comp sales trend has softened since the terrorist attacks in Paris, but not as much as feared.
“We were expecting a much bigger drop in comp trends than we’ve seen,” said Reddy, noting that the overall trend from before the attacks has held.