Guess CEO Touts ‘Very Healthy’ Denim Trends
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Guess Inc.’s European and Asian businesses outperformed the challenged Americas market in the second quarter.
In a Nutshell: Just like it did in the first quarter, product performance varied from one region to the next, Guess CEO Carlos Alberini told investors in a conference call last week.
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“In Europe, women’s, men’s and accessories all posted healthy sales growth. The best-performing products included outerwear, knit tops, woven shirts, including denim, sweaters, dresses and shorts,” Alberini said. “Accessories were particularly strong in Europe, with the best performance recorded by handbags, travel products, small leather goods, jewelry, belts, watches and eyewear. Marciano, kids and footwear were also strong.”
The CEO cited disappointing traffic when discussing sales declines in women’s, men’s and accessories in Americas retail. “We have been very careful not to promote,” Alberini said, pointing to sequential conversion improvements from Q1. Sweaters, activewear, some denim, dresses, woven shirts for women and knit tops for men performed well, in addition to accessories such as handbags, travel products and watches, he said.
“When you look at our denim trends, they are very healthy. When you look at our accessories business, it’s very strong,” Alberini said. However, the Marciano business had a challenging quarter due to “very strong sales” in the year-ago quarter.
The Asian market embraced women’s and men’s products and drove a “very strong” result for accessories, Alberini said, citing small leather goods and watches as category highlights.
He credited co-founder and chief creative officer Paul Marciano for reinventing Guess and how it’s positioned in the marketplace. “The results have been extraordinary. Now with a global line of products, we represent our brand consistently across all of our global distribution and across all of our 25 product categories,” Alberini said. “This initiative has driven significant efficiencies in global design, product development and sourcing and enabled us to massively consolidate our vendor base despite adding proximity vendors to enhance speed to market.”
Marciano has worked on syncing product launches with accompanying marketing campaigns. The company recently introduced Spanish-Argentine model Georgina Rodríguez as the face of Guess and Marciano for the fall season. The influencer and her international soccer sensation husband Cristiano Ronaldo together have more than 650 million Instagram followers, Alberini said, noting “very strong” initial sell-throughs for the products she models.
The Los Angeles fashion company is taking steps to grow full price sell-through, use fewer promotions and produce only what it can sell. It has remodeled “hundreds of stores” and opened new ones in the past three years. Over 80 percent of the store fleet has been updated, he said.
New planning tools are helping Guess Inc. better control inventory and cash flow. “We have already taken out about one month of inventory from the product cycle without impacting sales negatively,” Alberini said. Inventory should be down by 10 percent over 2022 when the year ends, he added.
Now that Guess Inc. closed its Hong Kong hub, the Singapore office oversees the Asian market.
New chief financial officer Markus Neubrand said the quarterly performance illustrates the “strength” of Guess Inc.’s “diversified business model.”
Net Sales: For the three months ended July 29, total net revenue rose 3 percent to $664.5 million from $642.7 million a year ago.
By region, net revenue in Europe rose 9 percent to $366.3 million and in Asia jumped 19 percent to $$59 million. European sales benefited from higher markups in recent years. Americas retail decreased 8 percent to $167.6 million, while retail comp sales—including e-commerce—fell 6 percent. Americas wholesale didn’t do so well, dropping 13 percent to $43.7 million. Licensing revenue rose 13 percent to $28.0 million.
Licensing—which does $100 million a year in in royalties—was powered by fragrances, handbags, footwear and watches, according to the CEO.
For the six months, total net revenue inched down to $1.23 billion from $1.24 billion a year ago.
Earnings: For the second quarter, net income spiked 63 percent to $39.0 million, or 59 cents a diluted share, from $24 million, or 35 cents, a year ago.
For the third quarter, the company guided adjusted diluted earnings per share (EPS) in the range of 55 cents to 64 cents on total net revenue at up 2.5 percent and 4.5 percent. For Fiscal 2024, adjusted diluted EPS was forecasted at $2.88 to $3.08 on total net revenue at up 2.5 percent and 4 percent.
For the six months, net income fell 15 percent to $27.2 million, or 46 cents a diluted share, from $31.9 million, or 46 cents, in the same year ago period.
CEO’s Take: “Our teams continue to focus relentlessly on those areas that we can control, and we have initiatives in place to further improve on our planning and execution to optimize our results,” Alberini said. “We see the biggest opportunities in four key areas of our business to create value: brand innovation, inventory management, efficiencies and cost control, and growth.”
