NEW YORK — Guess Inc. surprised Wall Street by swinging back to profitability in the first quarter.
Thanks in part to a massive improvement in earnings from its dwindling wholesale operations, the Los Angeles-based jeans company reported net income of $756,000, or 2 cents a diluted share, for the three months ended March 27. Analysts had forecast a loss of 4 cents. Last year, by comparison, Guess took a bath in red ink with a loss amounting to $5.8 million, or 13 cents.
Net revenues for the quarter improved 9.9 percent to $153.3 million from $139.6 million a year ago.
Broken down by business segment, revenues from wholesale operations actually declined by 4.8 percent to $42.9 million, but greater efficiency led to a more than fifteen-fold increase in segment income to $4.1 million from just $260,000 a year ago.
Retail operations, which have eclipsed wholesaling as the core of Guess, saw revenues fall 19 percent to $99.5 million. However, the segment dramatically pared its operating loss to $1.7 million from $6.5 million last year, as same-store sales rose 12.8 percent. The better comps helped Guess to substantially leverage its costs.
“The increase in same-store sales coupled with a significant margin increase and a lower-selling, general and administrative expense rate resulted in a $10.7 million improvement in operating income for the period,” said co-chief executive officer Paul Marciano in a statement. “We have maintained a clear focus on our inventory management and cost control as we continue to grow our revenue base through store expansion and same-store sales increases.”
Underscoring that point, Guess said April same-store sales are forecast to grow in the midteens.
Traditionally thought of as a wholesaler, Guess last year derived more than 70 percent of its net revenue from retail operations, while 23.5 percent came from the manufacturing business. Indeed, just five years ago the contributions to net revenue from the segments were almost equal, with retail accounting for 47.2 percent of sales and wholesale generating 45 percent. The remainder of Guess’ revenue comes from licensing.
— Dan Burrows