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Guess? (GES) Earnings Beat Estimates in Q2, Sales Increase

Guess?' (GES) second-quarter fiscal 2022 results reflect growth across most regions. However, permanent store closures were a drag.

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This story originally appeared on Zacks

Guess? Inc. GES reported second-quarter fiscal 2022 results, with the top and the bottom line increasing year over year. Revenues missed the Zacks Consensus Estimate, while earnings beat the same.



Performance gained from sales growth across most regions, despite pandemic-led headwinds and less promotional activities across direct-to-consumer businesses. Management is particularly impressed with strong growth in operating profit. In the reported quarter, the company made significant progress with its brand-elevation strategy. The company is optimistic regarding its ability to boost revenues in the forthcoming periods and reach $2.8-billion revenue target by fiscal 2024. In an effort to boost shareholders’ returns, the company approved a new share buyback program.

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However, when compared with second-quarter fiscal 2020, the company’s top line reflects a decline, thanks to pandemic-led store closures. Also, the company provided a dismal view for the third quarter and fiscal 2022. Shares of the company were down 4.5% during the after-hours trading session on Aug 25. 

Quarter in Detail

Guess? posted adjusted earnings of 96 cents per share, surpassing the Zacks Consensus Estimate of 68 cents. The company reported an adjusted loss of a cent in the year-ago quarter. In the reported quarter, share repurchases had a positive impact of 3 cents and currency rate had minimal impact on the bottom line.



Adjusted earnings surged 152.6% from 38 cents reported in the second quarter of fiscal 2020. This includes positive impacts from share repurchases worth 13 cents, while currency rate had minimal impacts.



Net revenues amounted to $628.6 million, which missed the consensus mark of $639.5 million. The metric went up 57.7% from $398.5 million reported in the year-ago quarter. On a constant-currency (cc) basis, net revenues surged 51.1% year over year. The upside can be attributed to sales momentum across all regions, other than Asia.  Revenues from products sales as well as royalties reflected growth.



The company’s net revenues declined 8% from $683.2 million reported in second-quarter fiscal 2020. The downside was caused by permanent store closures worth nearly 5% as well as the shift of European wholesale shipments into the third quarter. Management highlighted that capacity restrictions and lower demand were other headwinds.



The company’s gross margin expanded to 46.8% from 36.9% reported in the year-ago quarter. As a percentage of sales, SG&A expenses declined to 32.8% from 37.7% reported in the prior-year quarter’s level.



During the quarter, adjusted earnings from operations came in at $88.6 million against an adjusted operating loss of $0.9 million posted in the year-ago quarter. Adjusted operating margin came in at 14.1%, up 14.3% year on year on the back of expense leverage. Compared with second-quarter fiscal 2020 levels, adjusted earnings from operations improved 84.9% and adjusted operating margin increased 7.1%.

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 surged 69% year over year on a reported basis, while it increased 66% at cc. Revenues fell 6% from second-quarter fiscal 2020 levels, mainly due to store closures. Operating margin in the Americas Retail segment came in at 20.4%.



Revenues in Americas Wholesale unit rallied 146% (up 137% at cc) year over year. Revenues were up 19% from second quarter fiscal 2020 levels. Operating margin in the segment amounted to 26% compared with 8.3% in the prior-year quarter.



The Europe segment’s revenues surged 57% (up 48% at cc) year on year. Revenues fell 5% from second-quarter fiscal 2020 levels, due to pandemic-led traffic declines. Segmental operating margin came in at 15.9% compared with 10.1% in the year-ago quarter.



Asia revenues declined 5% (down 10% at cc) year on year. The metric fell 43% from second-quarter fiscal 2020 levels, due to permanent store closures.



Licensing revenues advanced 81% year over year. The unit’s revenues were up 18% compared with second-quarter fiscal 2020 levels, driven by strong performance in footwear and perfume. Operating margin came in at 91.9% compared with 94.8% in the year-ago quarter.

Other Updates

The company exited the quarter with cash and cash equivalents of $458.9 million as well as long-term debt and finance lease obligations of $79.9 million. Stockholders’ equity was $610.3 million. Net cash provided by operating activities for the six months ended Jul 31, 2021 amounted to nearly $43 million, while free cash flow amounted to $18.5 million.



The company announced a quarterly dividend of 11.25 cents per share, which is payable on Sep 24, 2021 to shareholders as of Sep 8.



Guess?’ board approved a share repurchase program worth up to $200 million of its common stock. It includes shares worth $48 million remaining under its previously-authorized repurchase program of $500 million.

COVID-19 Update

The pandemic-related disruptions continue to impact the company’s operations, as depicted by decline in revenues in the reported quarter, when compared to second-quarter fiscal 2020. Given the circumstances, the company is continuing to manage expenses prudently to maintain profitability.



In the reported quarter, the company opened stores that were closed in first-quarter fiscal 2022 due to pandemic-led restrictions. Accordingly, these stores were closed for approximately 5% of the total days during second-quarter fiscal 2022, mainly in Europe and Canada. As of Jul 31, 2021, 100% of the company’s stores were open.

Outlook

For third-quarter fiscal 2022, the company expects revenues to be negative to flat compared with third-quarter fiscal 2020 levels. This indicates that pandemic-led traffic declines will be offset by growth in global e-commerce business and favorable shift of European wholesale shipments.



For fiscal 2022, management continues to expect revenues to decline in mid-single digits from fiscal 2020 levels, considering that there will not be any more pandemic-related closures. The company expects operating margin to come in at nearly 10% in fiscal 2022. The view includes expectations of a back-to-normal pace of product development in the European wholesale business.

Price Performance

This Zacks Rank #3 (Hold) stock has rallied 103.8% in a year compared with the industry’s growth of 38.2%.

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