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Guess Reports First-quarter Results Dip With Shipping Headwinds and a China Lockdown

by News Desk

Guess Inc. is seeing customers wanting to dress up again, with women and men both improving their wardrobes after two years of casual dressing and working at home.

The Los Angeles apparel, accessories and footwear company, however, said there have been some headwinds to contend with, including the China lockdown, steep shipping costs and a strong dollar putting a crimp on overseas revenues.

As a result, first-quarter earnings for fiscal 2023 reported on Wednesday after markets closed declined 33.6 percent to $8 million, compared to $12 million in the year-ago first quarter. Diluted earnings per share were down 33.3 percent to 12 cents a share compared to 18 cents a share a year ago.

However, net revenues for the first quarter ending April 30 were up 14 percent to $593.5 million from $520 million in the same prior-year quarter.

Strong activity was seen in the company’s wholesale revenues in the Americas, which jumped 50 percent in U.S. dollars and constant currency. Another vibrant sector was licensing revenues, which rose 23 percent over last year. Much of that was due to delayed shipments of products finally making it to U.S. shores.

With more stores open in Europe this year than last, Guess saw its revenues in the region expand 14 percent in U.S. dollars and 26 percent in constant currency.

Retail revenues at the company’s stores in the Americas inched up 7 percent with same-store sales, including e-commerce, showing a lackluster 3 percent gain.

With the COVID-19 pandemic depressing economic activity in China, revenues in Asia barely moved the needle with a 1 percent increase. Same-store sales, including e-commerce, took a hit with an 11 percent decline.

“We continue to navigate a dynamic environment that includes higher inbound freight and product costs and a weaker euro and increased wages,” said Carlos Alberini, Guess’ chief executive officer.

But the company has seen its core customer eager to return to stores and buy fancier clothing to get away from a closet of T-shirts, sweatpants and blue jeans.

“For women, we have seen that our customer has a renewed desire to get out and participate in social events and travel,” Alberini said. “We have had great success with dresses where we have introduced significant units in fabrications, textures, prints and silhouettes.”

The company is also seeing strong performances in woven tops, dressy sweaters, pants and special outerwear pieces. Accessories are also doing well. “Our handbags are flying off the shelves,” the CEO said.

The men’s business was strong in woven shirts, outerwear, blazers and pants.

To keep customers coming in, Guess is remodeling a number of stores and opening stores that offer more customer service with analytic tools, better floor designs and spacious shopping areas. Fitting rooms are also being expanded.

“This year we plan to open 60 new stores in North America and Europe, and we plan to remodel 370 additional locations between the two regions,” Alberini said. “Considering the stores that we opened and remodeled last year, by the end of fiscal-year 2023 we will have 750 locations out of 950, or 80 percent, of the total stores updated.”

Inventory is up 20 percent over the previous first-quarter period due to orders placed earlier to avoid late deliveries. “We are very pleased with the composition of our inventory right now,” Alberini said. “We feel we have made the right moves to ensure monthly deliveries are protected for both our direct-to-consumer and wholesale business.”

Looking to the future, the company predicted that second-quarter earnings, assuming no meaningful COVID-19-related shutdowns, will be up around 1 percent in U.S. dollars and 8 percent in constant currency compared to the previous second quarter and operating margins will rise 7.5 percent.

For fiscal 2023, also taking into account possible COVID-19 restrictions, revenues are expected to increase 4 percent in U.S. dollars and 10 percent in constant currency. In fiscal 2022, revenues totaled $2.59 billion.

“Looking further out to fiscal 2024, we remain confident in our goals to reach $2.8 billion in revenues and achieve a 12 percent operating margin absent further currency headwinds as our assumption for more normalized costs and our plans for increased operational efficiencies,” Alberini said.

In the after-market Wednesday, Guess shares were trading slightly up at $18.25 a share compared to $18.03 at the market’s close.

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