GUESS FIRST-QUARTER EARNINGS UP 34.3%

Byline: Scott Malone

NEW YORK — The comeback continues.
Guess Inc. late Monday reported a 34.3 percent surge in first-quarter earnings, easily beating Wall Street’s expectations.
The increase came on a strong all-around performance in the Los Angeles company’s retail and wholesale operations, with the growth of the women’s apparel business helping to boost the smaller men’s line.
Net income for the three months ended April 1 was $15.4 million, up from $11.5 million in the prior-year quarter. Diluted earnings per share of 35 cents were well ahead of the 30 cent First Call consensus. Earnings per share for the prior-year period were 27 cents.
Net revenue was $188.8 million, up 46.3 percent from $129.1 million. Product sales drove the growth, climbing 48.7 percent to $178.4 million, while net royalties grew 14.5 percent to $10.4 million.
In a telephone interview, co-chairman and co-chief executive Maurice Marciano said the company’s women’s apparel business drove the growth.
“The women’s business was probably the strongest business for us,” he said. “What’s been doing very well for us has been all the sexy stuff, all the fashion. Knitwear has been doing very well. In the denim, it’s all about novelty denim. Not necessarily all the ornamental denim — that’s good for the windows — but novelty denim in terms of fabrications and finishes. One of the biggest categories has been all the stretch.”
The company’s retail operations also logged solid performances in the quarter. Comparable-store sales were up 19.2 percent, with full-price stores experiencing a 21.5 percent increase and outlet stores seeing a 13.1 percent increase.
Wholesale revenues were up 40.5 percent in the quarter.
Guess Canada, in which the company acquired a majority stake last year, contributed $7.9 million in revenues.
In addition to the top-line growth, Marciano pointed out that gross margin improved in the quarter.
Excluding royalties, gross margin was 45.1 percent, compared with 45 percent. Net royalties in the quarter were $10.4 million, up 14.5 percent from $9.1 million.
Marciano attributed the margin improvement to faster sell-throughs as well as to the company’s quicker in-season turn on fashion trends.
“We’ve done quite a bit of what I would call ‘injections,’ last-minute things that we want to do immediately, [merchandise] we don’t want to wait until next season for because they are hot items of the moment,” he said.
Analyst John Rouleau, of Gruntal & Co., called the results “extraordinarily strong.”
He said the company beat his expectations and that he expected the rise in comps to be a little more than half what the company reported. He said the gross margin improvement was more than he had expected.
He also noted that the company’s men’s apparel business was improving.
“Historically, women’s has been strong,” he said. “Men’s is now coming in with strong double-digit [sales increases]. Men’s is benefitting from the strength of the women’s brand. That is a very positive sign.”
Marciano said the company’s aggressive retail expansion plans for the year were progressing smoothly. Guess now operates 150 stores — after opening eight in the quarter — and plans to open about 50 more stores this year. All leases are either signed or in negotiation, Marciano said.
After a prolonged period of hard times, the strong results seem to indicate that Guess’s recovery is real. The stock has rebounded dramatically from its downturn. Before the results were released, Guess shares closed Monday at 27 13/16, up 5/16 on the Big Board. That’s substantially up from its 52-week low, 7 15/16, though off the high of 33 set about a month ago.
Marciano said he expected the strong results to continue, though he was somewhat guarded in his optimism.
“The outlook is pretty good. Our backlog is pretty strong. It’s up substantially from last year,” he said. “We should have a good year. I don’t want to put a jinx on it, but if there is not a major crash in the economy, we should have a good end of 2000.”