Guess?, Inc. (GES) Beats EPS, Misses Revs; Lowers View

Guess?, Inc.’s (GES) share price fell 2% on Dec 5, 2013. The share price fell as management lowered its outlook for fiscal 2014 during its third quarter earnings conference call held on Dec 4, 2013. Its third-quarter fiscal 2014 earnings of 42 cents exceeded the Zacks Consensus Estimate of 39 cents by 7.7%. Earnings, though, declined 2.3% year over year, beating management’s expectations of a range 34 cents to 38 cents per share.

Lower taxes and advertising expenses made up for weaker revenues and margins to result in better than expected earnings performance in the quarter.

Management lowered its outlook for fiscal 2014 amid a challenging economic environment in Europe and tough retail conditions worldwide.

Revenues and Margins

Revenues in the quarter slipped 2.4% to $613.5 million due to soft revenue results in most of the segments. Revenues also missed the Zacks Consensus Estimate of $617 million and were near the lower end of management’s expectation of a range of $610 million to $620 million. In constant currency, revenues fell 4.1%.

Operating earnings fell 14.2% to $49.8 million compared to $58.1 million in the year-ago quarter. The operating margin shrank 110 basis points (bps) year over year to 8.1% in the quarter. The contraction in margin was the result of markdowns and lower comps in North American retail and European wholesale business.

Segment Results

The North American stores generated revenues of $253.8 million in the third quarter, down 3.1% from the prior-year quarter. Comparable store sales shrank 5.0% due to lower mall traffic in the U.S. and Canada. Excluding the currency impact, segment revenues slipped 4.0%.

The European segment’s revenues slipped 0.8% to $200.9 million in the third quarter, due to lower wholesale business in Italy. However, the decline in business in Italy was partly offset by improving trends in Spain, Germany and Portugal. In constant currency, segment revenues slipped 6.6%.

The Asian segment’s revenues fell 2.8% to $72.7 million, due to weak results in China following lower consumer spending. In constant currency, the segment’s revenues slipped 5.5%.

Net revenue in the North American Wholesale segment fell 7.4% to $53.6 million compared with the prior-year period. In constant currency, the segment’s revenues slipped 6.2%.

Net revenue in the Licensing segment went up 3.1% to $32.4 million compared with the prior-year period.

Balance Sheet and Cash Flow

Guess? ended the third quarter of 2013 with cash and cash equivalents of $350.1 million compared with $343.7 million at the end of the previous quarter. Long-term liabilities were $200.8 million compared with $207.5 million in the prior quarter.

On Dec 4, Guess? approved a quarterly cash dividend of 20 cents per share payable on Jan 3, 2014 to shareholders of record at the close of business on Dec 18, 2013.

Guidance for Fourth-Quarter Fiscal 2014

For the fourth quarter of fiscal 2014, the company expects revenues in the range of $750 million to $770 million, operating margin in the range of 13.0% to 14.5% and adjusted earnings in the range of 74 cents to 84 cents per share. The company expectations fall short of Zacks Consensus Estimate of an earnings of 88 cents per share and revenue of $788 million.

Guidance for Fiscal 2014

For fiscal 2014, management lowered the revenue guidance to reflect lower comps in North American retail and European business, lower orders in North American wholesale business and an order decline in Greater China. Net revenue is now expected in the range of $2.55 billion to $2.57 billion instead of the earlier range of $2.56 billion to $2.59 billion.

GES also narrowed and lowered its earnings outlook for fiscal 2014. Management now expects earnings in the range of $1.73 to $1.83 per share, compared to the band of $1.70 to $1.84.

The company expectations fall short of Zacks Consensus Estimate of an earnings of $1.89 per share and revenue of $2.6 billion..

Guess? Inc. currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks to consider in the wholesale sector include Hanesbrands Inc. (HBI), Quicksilver Inc. (ZQK) and Micheal Kors Inc. (KORS). While Hanesbrands and Quicksilver carry a Zacks Rank #1 (Strong Buy), Micheal Kors carries a Zacks Rank #2 (Buy).