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Guess? (GES) Q1 Loss Widens, Revenues Up on Europe Strength

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Guess?, Inc. GES posted a loss in first-quarter fiscal 2020, which was wider than the year-ago period. However, the top improved year over year on the back of strength in Americas and Europe regions. Also, management’s earnings view for the second quarter and fiscal 2020 seems to have uplifted investors’ sentiments in this Zacks Rank #3 (Hold) stock that gained 2.7% during yesterday’s after-market trading session.

In fiscal 2020, management envisions adjusted earnings per share of $1.19-$1.30, including adverse currency impact of around 3 cents. Notably, the guidance stands above the Zacks Consensus Estimate of $1.18. Also, the company expects adjusted earnings of 27-30 cents for the second quarter, which is significantly below the consensus mark of 42 cents. Bottom line is likely to be adversely impacted by almost 2 cents from currency fluctuations.

Quarter in Detail

Guess? posted adjusted loss of 25 cents per share, narrower than the Zacks Consensus Estimate of a loss of 26 cents. In the year-ago period, the company posted a loss of 23 cents.

Guess?, Inc. Price, Consensus and EPS Surprise

Guess?, Inc. Price, Consensus and EPS Surprise

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

Net revenues amounted to $536.4 million, which lagged the consensus mark of $539 million. However, the top line improved 3% year over year. This marks the company’s 11th straight quarter of year-over-year revenue improvement. On a constant-currency (cc) basis, revenues grew 8.2%. This upside can be attributed to solid sales in most regions, especially Europe and the Americas.

The company’s gross margin expanded nearly 50 basis points (bps) to 33.9%, owing to occupancy leverage and increased initial markups.

Also, adjusted operating loss came in at $22.4 million, wider than the loss of $20.5 million recorded in the year-ago period. Results were hurt by escalated costs, mainly in Asia. This was somewhat compensated by favorable comparable sales and greater initial markups in Americas Retail and Europe.

Segment Performance

Revenues in the Americas Retail segment increased 3% year over year in U.S. dollar and 3.9% at cc. Further, retail comp sales, including e-commerce, improved 4% in U.S. dollar and 5% at cc, driven by improved conversions and UPTs. This marks the fifth successive quarter of positive comps.

Net revenues in the Americas Wholesale segment climbed 13.6% (up 15.5% at cc), backed by robust growth in U.S. department store and specialty business.

The Europe segment's revenues advanced 2.2% (up 12.3% at cc). Store openings and comps growth boosted the region’s performance. Retail comp sales, including e-commerce, dipped 1% in U.S. dollar, while it grew 8% at cc.

Asia revenues inched up 1.4% (up 6.6% at cc). Retail comp sales, including e-commerce, lost 15% (down 10% at cc), due to soft traffic in stores and online. Nonetheless, the company is positive about the long-term potential of this region.

Licensing revenues descended 4.9% both in U.S. dollar and at cc.

Other Updates

The company exited the quarter with cash and cash equivalents of $112.9 million, and long-term debt and capital lease obligations of $34.6 million. Further, stockholders’ equity was $547.6 million. Net cash used in operating activities during the first quarter of fiscal 2020 amounted to $96.5 million.

During the quarter, the company announced intentions to curtail its quarterly cash dividends from 22.5 cents a share to 11.25 cents. This move is aimed at redistributing capital and returning excess cash in the form of share buybacks. Consequently, management approved a quarterly cash dividend of 11.25 cents per share payable on Jul 5, 2019, to shareholders of record as of Jun 19.

During the quarter, Guess? used nearly $170 million worth of proceeds from its convertible senior notes, and entered an accelerated share repurchase (“ASR”) program. The company repurchased roughly 10.3 million shares for nearly $201.6 million during the fiscal first quarter.  

Guidance

Management is impressed with its quarterly outcome, given the solid revenue growth, efficient expense management and improved gross margin. The company is encouraged about its future prospects, courtesy of a robust global network, considerable brand strength and customer growth.

For fiscal 2020, net revenues are now guided to grow 3.5-4.5% (up 6-7% at cc). Earlier, the company projected revenues to increase 4-5% (up 5.5-6.5% at cc). Management expects adjusted operating margin to be up 4.8-5.2%.

For second-quarter fiscal 2020, the company anticipates net revenues to rise 4-5% (up 7-8% at cc). Adjusted operating margin is anticipated to decline 4.5-5%. Foreign currency translation is projected to adversely impact operating margin by 20 bps.

Region-wise, net revenue growth in Americas Retail is likely to range between down low-single digits and up low-single digits in the second quarter, whereas it is expected to be flat to up low-single digits in fiscal 2020. Net revenue growth in Americas Wholesale is likely to be up mid-single digits in the second quarter and up low-single digits in fiscal 2020.

In Europe, net revenues are expected to increase mid-to-high-single digits in both periods. In Asia, net revenues are expected to be up low-single digits in the second quarter and fiscal 2020. Licensing revenues are anticipated to drop low-single digits in both periods.

Shares of Guess? have lost close to 29% in the past three months against the industry’s growth of 2.5%.

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