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Guess? (GES) Q2 Loss Narrower Than Expected, Sales Down Y/Y

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Guess? Inc. (GES - Free Report) reported better-than-expected second-quarter fiscal 2021 results. The designer, marketer and distributor of apparel and accessories posted narrower-than-expected loss. Further, the company’s total revenues surpassed the Zacks Consensus Estimate. However, the top and the bottom line declined sharply from the year-ago quarter’s figure thanks to the impact of the coronavirus pandemic. Results bore the brunt of store closures and lower customer demand.

Due to uncertainties related to the COVID-19 crisis, management refrained from providing detailed outlook for the fiscal third quarter as well as fiscal 2021. However, the company anticipates sales in the fiscal third and fourth quarter to decline in mid-teens band.

Shares of this Zacks Rank #4 (Sell) company have slumped 40.1% so far this year compared with the industry’s decline of 8.4%.

Quarter in Detail

Guess? posted adjusted loss of 1 cent per share, which is narrower than Zacks Consensus Estimate of a loss of 61 cents. Better expense management, inventory optimization and prudent use of capital enabled the company to minimize loss. However, the metric deteriorated from earnings of 38 cents reported in the year-ago quarter. The downside was caused by lower revenues.

Net revenues amounted to $398.5 million, which surpassed the consensus mark of $382 million. However, the metric was down 41.7% year over year. On a constant-currency (cc) basis, net revenues plunged 41.2%. Sales in the quarter were affected by store closures as well as lower productivity in stores that remained operational amid the pandemic. Notably, stores were roughly shut 30% of the days in the quarter.

The company’s gross margin contracted 200 basis points (bps) to 36.9% due to occupancy deleverage in the quarter. SG&A expenses decreased 31.1% to $150.3 million. As a percentage of sales, SG&A expenses expanded 570 bps to 37.7%.

For the quarter, adjusted operating loss came in at $0.9 million against adjusted operating incomeof $47.9 million in the prior-year quarter. The deterioration was caused by cost deleveraging stemming from the coronavirus outbreak.

Guess, Inc. Price, Consensus and EPS Surprise

Guess, Inc. Price, Consensus and EPS Surprise

Guess, Inc. price-consensus-eps-surprise-chart | Guess, Inc. Quote

Segment Performance

Revenues in the Americas Retail segment declined 44.7% (or 44.1% at cc) year over year to $110.1 million. Operating margin decreased 730 basis points to negative 4.3% during the quarter. Margin was hampered by deleveraging impact of temporary store closures as well as reduced customer traffic owing to the pandemic.

Net revenues in the Americas Wholesale segment dropped 51.6% year over year to $20.3 million. Also, the metric was down 48.7% at cc. Further, operating margin in the segment came in at 8.3% compared with 20.1% reported in the year-ago quarter. This was caused by deleveraging of expenses as a result of the pandemic.

The Europe segment's revenues fell 39.5% year over year to $205.9 million. The metric declined 39.6% at cc. Operating margin in the segment was down 510 bps to 10.1% thanks to deleveraging of expenses due to lower revenue stemming from COVID-19.

Asia revenues plunged 39.7% on a year-over-year basis to $50.2 million. Additionally, the metric dropped 38.7% at cc.Operating margin for the segment declined 90 bps to negative 6.7% owing to deleveraging of expensesas a result of the coronavirus crisis.

Licensing revenues declined 34.5% year over year to $12.1 million. Operating margin in the segment increased to 94.8% in the quarter under review from 83.8% in the prior-year quarter.

Other Updates

The company exited the quarter with cash and cash equivalents of $328 million as well as long-term debt and finance lease obligations of $66.1 million. Further, stockholders’ equity was $438.3 million. Net cash used provided by operating activities during six months ended Aug 1 amounted to $40.7 million.

COVID-19 Related Update

During the fiscal second quarter Guess? has reopened most of its brick-and-mortar stores globally as coronavirus-induced lockdown restrictions were lifted gradually. As of Aug 1, nearly 95% of the company’s stores were reopened with the majority of closed stores located primarily within interior malls in California.

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