Guess Inc. will confront ongoing economic headwinds in North America and southern Europe by beefing up its depleted executive ranks and expanding its offerings of lower-priced jeans.
Paul Marciano, chief executive officer of the Los Angeles-based firm, revealed the moves in a conference call to discuss fourth-quarter results that fell well below those of a year ago but exceeded analysts’ expectations. He said the company had hired two executives — one to head design and another to oversee merchandising of its North American retail operations — and had resumed its search for a chief operating officer to succeed Michael Prince, who resigned in November but wasn’t expected to be replaced.
Marciano declined to name the new executive hires but said they were expected to be on the job within two months with disclosure of their identities anticipated within weeks. Management had been left shorthanded following the news last week that Nancy Shachtman, president of North America, had left the company.
While fourth-quarter results surpassed analysts’ estimates, guidance for the first quarter and full year fell well short of them, pushing shares down 6.1 percent in the early stages of after-hours trading to $25.31. They ended the trading session, prior to the disclosure of results, up 20 cents, or 0.8 percent, to $26.95.
In the three months ended Feb. 2, net income fell 24.3 percent to $72.6 million, or 85 cents a diluted share, from $95.9 million, or $1.05, a year ago. Adjusted earnings per share, eliminating the effects of a settlement charge on an Italian tax dispute and an offsetting tax benefit, were 95 cents, 8 cents above the 87-cent result expected by analysts.
Revenues rose 5.1 percent to $815.1 million from $775.8 million with Guess’ largest business unit, North American retail, logging a sales gain of 1.9 percent, to $350 million, despite a 6.3 percent decline in same-store sales.
For the full year, net income fell one-third to $178.7 million, or $2.05 a diluted share, as revenues dropped 1.1 percent to $2.66 billion.
“I’ve been very disappointed with the performance in North American retail over the past year,” Marciano told analysts. “We have taken a hard look at this business and we’re in the process of making some strategic management changes.” The company will also review the performance of underperforming stores as leases come up for renewal.
The ceo clearly expected conditions to remain difficult in southern Europe and North America, but noted strength in newer markets, such as Russia, and those outside the most severely challenged European locales, such as Germany. The respective businesses in those countries increased more than 100 percent and 40 percent during the fourth quarter.
He noted that Guess had been too heavily focused on jeans above $100 in recent seasons and was “increasing the denim offering at $75 to $95 price points” and intended to clearly communicate its dedication to more moderate prices in its stores and mailings to loyal customers.
“We realize that we have excluded the youngest version of the Guess girl, who is more price conscious than ever,” he said.
Guess expects first-quarter sales of between $545 million and $560 million and diluted EPS of between 5 and 10 cents. Both ranges were well below the $590.8 million and 29 cents, respectively, analysts had previously expected.