Guess? (GES) Q3 Earnings Beat Estimates, Sales Down Y/Y
Guess? Inc. GES reported third-quarter fiscal 2021 results with the top and the bottom line surpassing the Zacks Consensus Estimate. Moreover, earnings increased year over year. However, sales declined thanks to weakness across all segments, except Europe.
Due to uncertainties related to the COVID-19 crisis, management refrained from providing detailed outlook for the fourth quarter as well as fiscal 2021. However, the company anticipates sales in the fourth quarter to decline in low to mid-twenties. Lower customer traffic in stores and temporary government-mandated store closures, especially in Europe and Canada, owing to the coronavirus outbreak are likely to affect sales in the quarter. Also, permanent store closures are expected to be a drag.
Shares of this Zacks Rank #4 (Sell) company have declined 24.5% so far this year against the industry’s growth of 5%.
Quarter in Detail
Guess? posted adjusted earnings of 58 cents per share, which beat the Zacks Consensus Estimate of 6 cents. Also, the metric increased from earnings of 22 cents reported in the year-ago quarter. Notably, share repurchases had a positive impact of 5 cents on adjusted earnings per share.
Net revenues amounted to $569.3 million, which surpassed the consensus mark of $511.3 million. However, the metric declined 7.6% year over year. On a constant-currency (cc) basis, net revenues declined 10.1%. Sales in the quarter were affected by lower demand due to the coronavirus outbreak.
The company’s gross margin expanded 480 basis points (bps) to 42.1%. As a percentage of sales, SG&A expenses declined to 32.5% compared with 33.3% reported in the year-ago quarter.
During the quarter, adjusted earnings from operations increased significantly to $55.3 million. Adjusted operating margin expanded 600 bps to 9.7%, on the back of benefits from higher wholesale revenues in Europe stemming from elongating the fall-winter season’s shipment window. Also, higher initial markups and overall reduced expenses were a reason. These were somewhat offset by unfavorable impact from negative comparable sales.
Segment Performance
Revenues in the Americas Retail segment declined 26.7% (or 26.2% at cc) year over year to $130.3 million. Retail comp sales including e-commerce fell 21% (or 20% at cc). Operating margin contracted 50 bps to 0.4% thanks to deleveraging impact of negative comparable sales stemming from reduced traffic amid COVID-19. These were somewhat offset by lower store selling expenses.
Net revenues in the Americas Wholesale segment dropped 36.2% year over year to $36 million. Also, the metric was down 34.2% at cc. Further, operating margin expanded 300 bps to 22.9% mainly driven by higher product margin.
The Europe segment's revenues increased 16% year over year to $321.6 million. The metric rose 10.2% at cc. Retail comp sales including e-commerce fell 9% (or 13% in cc). Operating margin expanded 900 bps to 16.0% mainly driven by overall cost leveraging. Also, higher initial markups and rent concessions were a reason.
Asia revenues plunged 24.7% on a year-over-year basis to $62 million. Additionally, the metric dropped 26.6% at cc. Retail comp sales, including e-commerce, declined 15% (or 18% in cc). Operating margin expanded 530 bps to 2.3% on the back of higher product margin and the favorable impact of business mix.
Licensing revenues declined 12.5% year over year to $19.4 million. Operating margin increased 660 bps to 93.8%.
Guess, Inc. Price, Consensus and EPS Surprise
Guess, Inc. price-consensus-eps-surprise-chart | Guess, Inc. Quote
Other Updates
The company exited the quarter with cash and cash equivalents of $365.3 million as well as long-term debt and finance lease obligations of $70.1 million. Further, stockholders’ equity was $459.8 million. Net cash used provided by operating activities during nine months ended Oct31 amounted to $98.4 million.
The company announced a quarterly dividend of 11.25 cents per share on its common stock. The dividend will be payable on Jan 4, 2021 to shareholders as of Dec 16, 2020.
COVID-19 Related Update
Toward the end of the fiscal third quarter, Guess? started to implement a new round of government-mandated temporary store closures amid the pandemic. This resulted in the closure of just more than 5% of its directly-operated stores as of Oct 31. These closures were mainly in Europe. The percentage of store closures increased to slightly below 20% during November. Nevertheless, the recently undertaken store reopening has moved the percentage of store closures to under 10% as of Nov 29.
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