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Guess' (GES) Q1 Loss Wider than Expected, View Slashed

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Apparel retailer Guess’, Inc. (GES - Free Report) reported first-quarter fiscal 2017 results, wherein loss was wider than the Zacks Consensus Estimate and revenues lagged the same.

Guess’ reported adjusted loss of 23 cents per share. the company had posted earnings of 4 cents per share in the year-ago quarter. The loss resulted from top-line weakness and currency headwinds, which impacted results by 8 cents. The reported loss was also wider than the Zacks Consensus Estimate of a loss of 19 cents. Loss was also wider than management’s projected range of a loss of 20 cents to 17 cents.

 

GUESS INC Price and EPS Surprise

GUESS INC Price and EPS Surprise | GUESS INC Quote

Revenues and Margins

Revenues slipped 6% to $449.0 million due to decline in all the segments. On a constant currency basis, revenues decreased 5% as against management’s guided range of 1.5% decline to 0.5% increase. Revenues also lagged the Zacks Consensus Estimate of $463 million.

Total gross margin decreased 280 basis points (bps) to 31.8% primarily due to the currency impact and a weaker top line.

Operating loss in the first quarter of fiscal 2017 was $22.9 million due to higher selling, general and administrative expenses. Operating margin decreased 600 bps in the quarter to 5.1%.

Segment Results

Starting from second-quarter fiscal 2016, Guess’ changed the names of its "North American Retail" and "North American Wholesale" segments to "Americas Retail" and "Americas Wholesale," respectively.

Revenues from retail stores and e-Commerce sites at the Americas Retail segment declined 5% and 3%, on a constant currency basis Consolidated comparable store sales (comps) including e-commerce decreased 4%. Comps decreased 3% on a constant currency basis. Results were below the low-end of management’s guidance, due to a steep decline in traffic and conversion during the unseasonably cold weather during April. Spring product in the stores significantly underperformed to cold weather product.

Including the currency impact, consolidated comps dipped 1% due to lower average unit retail sales. E-Commerce, however, had another strong quarter and delivered top-line growth of 11%, marking the 19th consecutive quarter of growth in the U.S. and Canada. Women’s category comps were positive driven by higher sales of dresses, knit tops and wovens.

The European segment's revenues decreased 1%. On a constant currency basis, revenues decreased 3%. Retail comps in the region were up in the mid-teen digits due to comp increases across most markets in the region, with Italy and Spain performing particularly well.

Revenues from Asia fell 15% and 11% in constant currency due to lower sales in China..

Net revenue at the American Wholesale segment decreased 12% due to softness in the U.S. wholesale business. At constant currency, the segment's revenues declined 7% year over year.

Other Financial Update

During the first quarter, the company’s board approved a quarterly cash dividend of 22.5 cents per share on the company's common stock. The dividend will be payable on Jun 24, 2016, to shareholders of record at the close of business as on Jun 8, 2016.

Guidance for Second-Quarter Fiscal 2017

The company expects net revenue increase of 0.5% to 2.5%, on a constant currency basis.

The company anticipates operating margin in the range of negative 1.5% and 2.5%, including 60 bps of currency headwinds. Adjusted earnings per share is expected in the band of 4 cents to 8 cents.

Guidance for Fiscal 2017

For fiscal 2017, Guess lowered its earnings outlook and now expects adjusted earnings in the range of 55 cents to 75 cents compared with 65 cents to 85 cents expected previously. This compares unfavorably with 96 cents reported in fiscal 2016. The guidance takes the unfavorable currency impact of 12 cents per share into consideration.

The company lowered its revenue growth outlook and now expects net revenue to rise 5.5% to 7.5% on a constant currency basis compared with the previous range of 7% to 9%. Currency is expected to have a positive impact of about 0.5% compared with 1% projected earlier.

Operating margin is expected between 3.5% and 4.5% compared to the previous guidance of 4.0% and 5%.

The lowered guidance reflects a challenging environment for the company and its soft start to fiscal 2017

Guess’ currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the consumer textile apparel sector include Oxford Industries Inc. (OXM - Free Report) , Perry Ellis International Inc. (PERY - Free Report) and Tailored Brands, Inc. (TLRD - Free Report) , all holding a Zacks Rank #2 (Buy).

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