Byline: Thomas J. Ryan

NEW YORK — Guess Inc. reported operating earnings rose 4.3 percent in the third quarter ended Sept. 25, helped by higher royalty income and strength in its wholesale business and full-price retail stores.
Overall, Guess’s net profits dipped 3 percent to $35.3 million from $36.4 million, primarily due to an increase in interest expense to $4 million from $2.9 million. The heavier interest costs stemmed from an August 1993 recapitalization, which included the issuance of $130 million of 9 1/2 percent senior subordinated notes.
Guess, a privately held firm based in Los Angeles, files financial data with the Securities & Exchange Commission because of its public debt.
Royalty income in the quarter jumped 37.6 percent to $11.8 million, offsetting a decline in gross margins to 49.1 percent of sales from 51.7 percent. The gross margins decline reflected higher fabrication and processing costs.
Total sales were up 3.3 percent to $149 million from $144.2 million. Wholesale revenues — excluding sales lost from products licensed in 1993 — advanced 14 percent to $119.9 million, primarily due to continued growth in the women’s and men’s business.
The 1993 quarter included $8.3 million in revenues from operations that have since been licensed. In 1992, Guess decided to focus on its core men’s and women’s lines, and has since licensed its boys’ wear line, the majority of its girls’ line and the women’s knit line. Revenues from retail operations declined 9.5 percent to $45.5 million. Sales at Guess Factory Outlet stores tumbled 21.9 percent to $29 million due to product assortment changes instituted in fall 1993 and sluggishness in the apparel retail outlet market. This weakness offset a 25.5 percent hike in revenues at Guess Retail regular-price stores to $16.5 million, reflecting a 20.6 percent same-store sales jump and store openings.
Sales by its wholesale operations to its retail operations are generally recorded at the wholesale prices charged to other customers. By yearend, Guess will have about 60 Guess Retail and 40 outlet stores.
“We had an extremely good third quarter,” said Roger Williams, chief financial officer, noting that all three of Guess’ growth vehicles – wholesale, Guess Retail and licensing — showed marked improvement.
“The juniors and men’s business both had double-digit gains, and both the basic and the fashion parts of our business are up,” Williams said.
In the nine months, net earnings slipped 12.9 percent to $74.9 million from $85.9 million, reflecting an increase in interest expense to $12.6 million from $3.4 million. Operating earnings improved 2.5 percent to $89.8 million, lifted by a 51.2 percent hike in royalty income to $28.3 million.
Sales declined 4.1 percent to $374.6 million from $390.7 million, reflecting sales lost to licensed lines. Excluding lost revenues from licensed operations, wholesale sales improved 10 percent to $325 million. Retail revenues dipped 0.5 percent to $100.2 million as a 9.9 percent decline at outlet stores offset a 16.6 percent gain at Guess Retail.
Inventory at Sept. 25 increased 23.1 percent to $99.1 million, mainly due to a buildup of the company’s Quick Response program, anticipation of holiday shipments and Guess Retail store openings.
— Fairchild News Service

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