Guess Beats, Raises Dividend

Guess Inc. (GES - Analyst Report) reported robust second quarter results with earnings of 64 cents per share, which was 20 cents above the Zacks Consensus Estimate of 44 cents. Quarterly earnings were up 14.3% year-over-year.

Net sales for the quarter increased 1.4% year-over-year to $522 million, primarily driven by the European segment. Comparable store sales decreased 12.5% in US dollars for the quarter, compared to the same period a year ago.

Revenues in the Retail segment declined 6.1% year-over-year due to a 12.5% decrease in comparable same-store sales. During the quarter, the company opened five new stores and closed three others. Average square footage increased 6.6% year-over-year.

The Wholesale segment revenues declined 13% in the quarter, primarily due to the effects of foreign currency translation. Further, the North American wholesale business was also down due to the low consumer demand at U.S. department stores.

The European segment revenues for the quarter totaled $210 million, reflecting a 21% increase. Sales primarily benefited from the successful introduction of a pre-collection in the wholesale apparel business.

Licensing segment revenue declined 15.9% to $22.1 million in the second quarter of fiscal 2010, from $26.2 million in the prior-year period.

Gross margin for the quarter contracted 69 basis points (bps) to 44.4% versus 45.1% in the prior-year quarter. Benefits of tight inventory control were more than offset by the impact of negative comparables on the retail occupancy costs and the negative impact of the strong U.S. dollar on European product purchases.

At the quarter end, Guess had cash reserves of $330 million, a 12% increase year-over-year. The company has reduced its debt by $41 million, thereby creating a pristine balance sheet for itself with virtually no debt.

Year-to-date, the company has generated $121 million in cash flow from operations compared to $116 million in the prior-year period.

The Board of Directors has approved a 25% increase in the quarterly dividend to 12.5 cents per share. The dividend will be payable on September 25, 2009 to shareholders of record at the close of business on September 9, 2009.

Based on the performance of the company during the first half, management provided guidance for the third quarter of fiscal 2009. Quarterly earnings are expected to be in the range of 46 cents to 49 cents per share.

Consolidated revenues are expected to be in the range of $465 million to $485 million, and operating margin is expected to be about 14%.

The continued volatility in the global economy poses a significant headwind in forecasting future consumer behavior and financial results. Therefore, due to the company’s limited visibility, management has not provided specific revenue, operating margin or earnings guidance for full fiscal 2010.

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