Guess?, Inc. Earnings Call: Mixed Results and Optimistic Outlook

Guess?, Inc. ((GES)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call for Guess?, Inc. reflected a mixed sentiment, highlighting both positive achievements and notable challenges. The company demonstrated strong revenue growth, particularly in the wholesale segments and through the acquisition of rag & bone. However, it faced significant hurdles, including declines in Asia and licensing revenues, as well as a decrease in gross margin. Overall, the sentiment was mixed with slight positive trends in certain areas, but significant issues remain.

Overall Revenue Growth

The earnings call revealed that Guess?, Inc. experienced a 9% increase in total company revenues, reaching $648 million in U.S. dollars. In constant currency, this growth was 12%, with the acquisition of rag & bone contributing 9 percentage points to this increase. This demonstrates the company’s ability to expand its revenue base despite currency fluctuations.

European Wholesale Success

The European wholesale segment was a standout performer, posting a mid-teen growth rate. This success was driven by reliable product deliveries, even amidst supply chain challenges, showcasing the company’s resilience and strong operational capabilities in this region.

Americas Wholesale Performance

In the Americas, wholesale revenues surged by 63% in U.S. dollars. This impressive growth was fueled by the addition of rag & bone and increased Guess shipments in the U.S. and Mexico, highlighting the robust demand in these markets.

Rag & Bone Outperformance

Rag & bone, acquired by Guess?, significantly outperformed expectations with strong wholesale shipments and growth in retail stores and online. The business is on track to achieve over $320 million in sales, up from $250 million prior to the acquisition, underscoring its successful integration and market appeal.

Loyalty Program Success

In Europe, the introduction of a new customer loyalty program led to a 36% increase in revenues from loyalty customers in Italy and Poland. This initiative has proven effective in enhancing customer engagement and driving sales growth.

Asia Revenue Decline

The company faced challenges in Asia, with revenues decreasing by over 20%. The Greater China market, in particular, showed significant weakness. Guess? is actively seeking a partner to take over its business in this region to address these issues.

Licensing Revenue Challenges

Licensing revenues declined by 14%, with notable decreases in fragrances and footwear, although handbags showed some growth. This segment remains an area of concern for the company.

Americas Retail Comps Decline

The retail segment in the Americas experienced a decline, with comps for U.S. and Canadian stores falling by 10% in constant currency. Including e-commerce, the total decline was 11%, indicating challenges in the retail environment.

Gross Margin Pressure

Guess? reported a decrease in total company gross margin by 200 basis points to 39.9%. This was attributed to changes in business mix and lower royalty income, highlighting the need for strategic adjustments to improve profitability.

Adjusted Operating Loss

The company reported an adjusted operating loss of $26 million, with an adjusted operating loss margin of 4%. This reflects ongoing financial challenges that the company is working to address.

Forward-Looking Guidance

Looking ahead, Guess? provided optimistic guidance, anticipating revenue growth between 5.5% and 7.4% for the full fiscal year. Despite a 2.5-point currency headwind, the company expects an adjusted operating margin of 4.4% to 5.1% and EPS ranging from $1.32 to $1.64. The European wholesale segment is expected to continue driving growth, while challenges persist in the Asian market.

In summary, the earnings call for Guess?, Inc. painted a picture of mixed sentiment, with strong revenue growth in certain areas offset by significant challenges in others. Key takeaways include the success of the European wholesale segment and the rag & bone acquisition, alongside ongoing struggles in Asia and licensing revenues. The company’s forward-looking guidance remains optimistic, aiming for continued growth and improved financial performance.