Guess? Invests in Premium Denim

6/3/2015
Guess?, Inc.'s North American retail revenues decreased 6 percent for its first quarter ended May 2, 2015.

Retail comp sales including e-commerce decreased 6 percent in U.S. dollars and 4 percent in constant currency, while European revenues decreased 14 percent in U.S. dollars and increased 8 percent in constant currency. What's more,  Asian revenues decreased 9 percent in U.S. dollars and 6 percent in constant currency.

The company's North American wholesale revenues also suffered a bit, decreasing 5 percent in U.S. dollars and increasing 1 percent in constant currency. Guess? earned $4 million from operations in Q1 fiscal 2016, compared to a loss of $2 million during the same period a year prior.

First quarter fiscal 2016 results
For the first quarter of fiscal 2016, the company recorded net earnings of $3.3 million, compared to a net loss of $2.1 million for the first quarter of fiscal 2015.

"Overall first quarter results were better than our expectations, mainly driven by tight expense management," said CEO Paul Marciano. "In North America, we saw improvements in the women's category, and Marciano delivered another quarter of good performance with comp sales up in the mid-single digits. Our e-commerce business continued to experience solid top-line growth of almost 14 percent. In Europe, our retail stores performed above expectations and delivered positive comps."

Marciano continued, "So far during the second quarter, we continue to see improvements in these same areas. In North America, Women's products are trending in line with the first quarter and Marciano remains strong with comp sales up in the high-single digits. In Europe, our retail stores are now comping up in the mid-single digits. We are very encouraged by the first quarter performance and early reads on the second quarter, and we will continue to focus on executing on our strategic initiatives aimed at improving the company's profitability."

In the denim category, COO Michael Relich described the basics business as "a bit soft" while Guess? is investing a lot in premium products with new fits and new technologies. One particular fabric, a comfortable, soft pajama-like material, seems to be acknowleding the athleisure trend. Curve X, one of the brand's new fits, incorporates a "very technical fabrics," said Relich, and these and other new denim products are commanding price points between $128 and $148.

Total net revenue for the first quarter of fiscal 2016 decreased 8.4 percent to $478.8 million, from $522.5 million in the prior-year quarter. 

The company's retail stores and e-commerce sites in North America generated revenue of $214.2 million in the first quarter of fiscal 2016, a 6.2 percent decrease from $228.3 million in the same period a year ago. Comparable store sales including the results of its e-commerce sites for the first quarter of fiscal 2016 decreased 5.9 percent in U.S. dollars and 3.8 percent in constant currency compared to the same period a year ago.

Net revenue from the company's Europe segment decreased 13.7 percent to $137.4 million in the first quarter of fiscal 2016, from $159.2 million in the prior-year period. In constant currency, net revenue increased 7.5 percent.

Net revenue from the company's Asia segment decreased 8.7 percent to $64.0 million in the first quarter of fiscal 2016, from $70.1 million in the prior-year period. In constant currency, net revenue decreased 6.0 percent.
Net revenue from the company's North American Wholesale segment decreased 5.2 percent to $37.3 million in the first quarter of fiscal 2016, from $39.3 million in the prior-year period. In constant currency, net revenue increased 1.4 percent. Licensing segment net revenue increased 1.0 percent to $25.9 million in the first quarter of fiscal 2016, from $25.6 million in the prior-year period.

Operating earnings for the first quarter of fiscal 2016 was $4.4 million (including a $1.2 million favorable currency translation impact), compared to an operating loss of $2.0 million in the prior-year period, an increase of $6.3 million. Operating margin in the first quarter increased 130 basis points to 0.9 percent, compared to negative 0.4 percent in the prior-year quarter. The increase in operating margin was driven by the favorable impact from business and segment mix and overall product margin improvements relating to less markdowns and higher initial mark-ups in North American Retail. These increases were partially offset by negative impact on the company's fixed cost structure from negative same store sales in North America and the unfavorable impact from currency exchange rate fluctuations.
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