Paul Marciano is putting Guess Inc. on a diet after a disappointing second quarter and signs of continuing struggles as the second half begins.
This story first appeared in the August 28, 2014 issue of WWD. Subscribe Today.
Marciano, cofounder and chief executive officer of the Los Angeles-based jeanswear and sportswear firm, said that Guess will trim its North American store portfolio and streamline its organization to “adapt to the new normal of retail today.”
By the end of the current fiscal year, Guess plans to close 50 of the 488 stores in its North American store base as of Aug. 2 after reducing that figure from 507 one year ago. “In addition to these 50 stores, 50 percent of our North American store base will come up for renewal in the next three-and-a-half years, which will give us flexibility to optimize our real estate portfolio,” he said during a late-afternoon conference call with analysts Wednesday.
The plans to limit Guess’ retail exposure came after the company reported lower second-quarter profits and sales that fell short of Wall Street’s expectations and provided guidance for third-quarter results that were well below consensus estimates.
“So far, sales trends have not improved from the second quarter and the improvement we had expected during the last quarter [did not] materialize,” he said.
In the three months ended Aug. 2, net income fell 44.9 percent to $22 million, or 26 cents a share, from $39.9 million, or 47 cents, in the year-ago period, with all five business units — North American retail, Europe, Asia, North American wholesale and licensing — generating lower sales and operating income than in the 2013 quarter.
Revenues slid 4.8 percent to $608.6 million from $639 million, with North American retail revenues down 4.1 percent, to $244 million, and comparable sales down 5.4 percent in U.S. dollars and 4.4 percent at constant currency. While the other units of the firm had lower profits, the North American retail operation suffered a $4.7 million operating loss versus operating income of $10.4 million a year ago.
Gross margin pulled back 330 basis points to 35.6 percent of sales from 38.9 percent.
The results fell below consensus estimates that called for earnings per share of 29 cents and revenues of $617.9 million. Based on the lack of improvement at the start of the new quarter, Guess provided guidance for EPS of between 15 and 20 cents on revenues of $590 million to $600 million, versus consensus estimates for EPS of 37 cents on revenues of $613 million.
That prompted a 7.7 percent decline in Guess shares in after-hours trading, to $23.67. They closed at $25.64, down 0.7 percent, just prior to the release of quarterly results.
Marciano reported that Guess’ men’s business had been strong, and the firm revealed that, within its North American retail results, e-commerce sales surged 47.8 percent to $15.2 million as the company addressed the “acceleration of the integration of consumer buying behavior across brick-and-mortar, online and mobile platforms, creating a true omnichannel shopping experience.”
Speaking of the recently disclosed departure of Sharleen Ernster Lazear, appointed chief design officer 18 months ago, the ceo said that Hillary Super, who arrived at Guess just before Lazear as senior vice president and general merchandise manager, had also departed. Super’s exit, unlike Lazear’s, was for personal reasons, he said, adding that both executives had left strong teams in place. Among the merchandise misses during recent months had been “nondenim athletic leisure pants,” Marciano noted.
In the first half, net income receded 60.1 percent to $19.9 million, or 23 cents a diluted share, as revenues were off 4.8 percent to $1.13 billion.