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Apparel retailer Guess?, Inc. (GES - Analyst Report) started the year on a mixed note. While the results were better than expected, they declined from the year-ago quarter.

Guess? reported first quarter fiscal 2015 loss per share of 3 cents as against the prior-year earnings of 14 cents per share due to a weak top line and decline in consumer spending. However, the first quarter loss was better than the Zacks Consensus Estimate of a loss of 6 cents and management’s expectation of a loss of 9 cents to 5 cents per share.

Revenues and Margins

Revenues slipped 4.8% to $522.5 million due to lower traffic in most of the company’s stores, as a result of severe winter weather conditions. Additionally demand in North America and Europe fell in the quarter which led to a slip in revenues. However, revenues slightly beat the Zacks Consensus Estimate of $522 million and were at the lower end of management's expectation of $520 million to $535 million. On a constant currency basis, revenues fell 5.6%. Nevertheless, the company is very pleased with the e-commerce business, which delivered top-line growth of almost 50% in North America.

Operating loss was $2 million in the first quarter as against adjusted operating income of $13.7 million in the year-ago quarter. Operating margin shrank 290 basis points (bps) year over year to negative 0.4%. The contraction in margin was the result of lower wholesale shipments in Europe and negative same store sales in North America which negatively impacted the company's fixed cost structure.

Segment Results

The revenues from retail stores and e-commerce sites in North American declined 4.2% to $228.3 million in the first quarter. Comparable store sales (comps) fell 3.8% due to lower mall traffic. Excluding the currency impact, comps slipped 2.3%.

The European segment's revenues slipped 3.8% to $159.2 million. On a constant currency, revenues declined 8.1%. The company remains concerned about the potential impact of the turmoil in Russia and Ukraine on its Eastern European business.

The Asian segment's revenues fell 1.4% to $70.1 million, due to weak results in Greater China following lower consumer spending. In constant currency, the segment's revenues slipped 4.3%.

Net revenue in the North American Wholesale segment fell 10.3% to $39.3 million. In constant currency, the segment's revenues slipped 7.7%.

Net revenue in the Licensing segment slipped 15.3% to $25.6 million from the prior-year period.

Balance Sheet and Cash Flow

Guess? ended the first quarter of fiscal 2015 with cash and cash equivalents of $472.5 million compared with $502.9 million at the end of the previous quarter. Long-term liabilities were $207.6 million in the first quarter versus $211.0 million in the prior quarter.

During the first quarter, the company’s board approved a quarterly cash dividend of 22.5 cents per share to be paid on June 27, 2014 to shareholders of record June 11, 2014.

Guidance for Second-Quarter Fiscal 2015

For the second quarter of fiscal 2015, the company expects revenues in the range of $615 million to $630 million, lower than the last year’s revenue of $639 million. The company expects operating margin in the range of 5.5% to 6.5% versus 10.5% adjusted operating margin posted in second quarter fiscal 2014. Earnings are expected in the range of 25 cents to 30 cents per share, much lower than 52 cents per share generated in the prior-year quarter. The company’s expectations are lower of the Zacks Consensus Estimate of 41 cents. The disappointing second quarter signals that revival in consumer spending will take time.

Guidance for Fiscal 2015

The company has slightly revised its revenue guidance for fiscal 2015 and now expects it in the range of $2.53 billion to $2.57 billion, narrower than the previous range of $2.53 billion to $2.58 billion. Operating margin is expected at 7.0% to 8.0%. Adjusted earnings are expected in the range of $1.40 to $1.60.

The guided earnings fell short of the Zacks Consensus Estimate of $1.56 per share.

Guess? Inc. currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks to consider in the apparel industry include Hanesbrands Inc. (HBI - Analyst Report), Columbia Sports Inc. (COLM - Snapshot Report) and Micheal Kors Inc. (KORS - Analyst Report), all carrying a Zacks Rank #2 (Buy).

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