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Guess?, Inc.'s (GES - Analyst Report) second-quarter fiscal 2014 earnings of 52 cents per share climbed 6.1% from the year-ago earnings of 49 cents. Earnings also exceeded management’s expectations of a range 34 cents to 38 cents per share and Zacks Consensus Estimate of 36 cents by 44.4%.

Profits were on the upswing mainly because of tight expense management and cost control.

Revenues and Margins

Revenues in the quarter climbed 1% to $639 million backed by higher sales in most of the segments. Revenues exceeded the Zacks Consensus Estimate of $625 million and management's expectation of a range of $620 million to $635 million. However, excluding the currency impact, revenues slipped 1.4%.

Operating earnings climbed 16.8% to $66.9 million compared to $57.3 million in the year-ago quarter. The operating margin inflated 150 basis points (bps) year over year to 10.5% in the first quarter. The gain in margin was the result of a favorable year-over-year comparison due to lower selling, general and administrative expenses in the second quarter and a favorable comparable base due to a bad debt provision made in the prior-year quarter.

Segment Results

The North American stores generated revenues of $254.3 million in the second quarter, up 0.5% from the prior-year quarter. Comparable store sales shrank 2.0% from the year-ago quarter, due to unfavorable weather in the initial months of the quarter. E-commerce business in North America grew 25% over the last year. Guess? started in-store fulfillment of e-commerce orders during the quarter.

The European segment's revenues climbed 1.4% to $250.4 million in the fourth quarter, on the back of strong results in key new markets like Russia and Germany. Excluding the currency impact, segment revenues slipped 3.3%.

The Asian segment's revenues slipped 1.5% to $65.9 million, due to weak results in China following lower consumer spending. Excluding the currency impact, segment's revenues slipped 3.6%.

Net revenue in the North American Wholesale segment slipped 0.7% to $41.4 million in the prior-year period.

Net revenue in the Licensing segment remained almost flat at $27.1 million compared with the prior-year period.

Balance Sheet and Cash Flow

Guess? ended the second quarter of 2013 with cash and cash equivalents of $343.7 million compared with $306.4 million in the previous quarter. Long-term liabilities stood at $207.5 million compared with $212.2 million in the prior quarter.

On Aug 28, 2013 Guess? approved a quarterly cash dividend of 20 cents per share payable on Sep 27, 2013 to shareholders of record at the close of business on Sep 11, 2013.

Guidance

For the third quarter of fiscal 2014, the company expects revenues in the range of $610 million to $620 million, operating margin in the range of 7.5% to 8.0% and adjusted earnings in the range of 34 cents to 38 cents per share.

For 2014, the company expects earnings in the range of $1.78 to $1.92 per share, higher than the band of $1.70 to $1.90 per share as announced previously. Operating margin is now expected in the range of 9.0% to 9.5% instead of the previously-announced range of 8.5% to 9.5%. The new outlook reflects the higher than expected earnings in second-quarter due to tight cost control and expense management.

However, management lowered revenue guidance to reflect lower consumer spending in China and ongoing macroeconomic challenges in Southern Europe. Net revenue is expected in the range of $2.56 billion to $2.59 billion instead of the earlier range of $2.57 billion to $2.61 billion.

The Zacks Consensus Estimate is pegged at 40 cents and $1.81 per share for the second quarter and fiscal 2014, respectively.

Conclusion

Guess? posted a decent first quarter with the bottom line surpassing the Zacks Consensus Estimate. However, low comparable store sales due to macroeconomic uncertainty restricted revenue growth in North America and Europe.

Guess? Inc. currently carries a Zacks Rank #3 (Hold). Other stocks in the retail and wholesale sector worth considering include Hanesbrands Inc. (HBI - Analyst Report), Micheal Kors Inc. (KORS - Analyst Report) and Columbia Sports Inc. (COLM - Snapshot Report). While Hanesbrands and Micheal Korscarry a Zacks Rank #1 (Strong Buy), Columbia Sports carries a Zacks Rank #2 (Buy).

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