Guess? Beats Q4 Earnings, Lags Revenues due to Fx Headwinds - Analyst Blog
Apparel retailer Guess?, Inc. GES reported mixed fourth-quarter fiscal 2015 results. Although earnings beat expectations, revenues missed the Zacks Consensus Estimate.
Guess? posted fourth-quarter earnings per share of 63 cents, down 24.1% from 83 cents in the year-ago quarter due to a weak top line and lower margins. Earnings, however, surpassed the Zacks Consensus Estimate of 58 cents by 8.6% and were at the upper end of management’s expectation range of 53 to 63 cents.
Revenues and Margins
Revenues slipped 9.3% year over year to $696.7 million due to soft currency headwinds. Additionally, soft traffic and tough retail conditions in Europe affected revenues. The top line also missed the Zacks Consensus Estimate of $702 million by 0.75% and was at the lower end of management's expectation of $695 to $710 million. On a constant currency basis, revenues fell 4.1%. The company’s e-Commerce, however, performed well with 37% improvement in North America
Adjusted operating income slipped 30% to $73.2 million as against $104.6 million in the year-ago quarter. Operating margin shrank 310 basis points (bps) year over year to 10.5% due to deleverage of the company’s fixed cost resulting from comparable store sales (comps) decline in North America, higher store impairment charges, lower wholesale shipments in Europe and more markdowns in North America.
Segment Results
Revenues from retail stores and e-Commerce sites in North American segment declined 3.7% to $329.0 million. Comps fell 5% due to lower mall traffic. Excluding the currency impact, comps slipped 3.5%.
The European segment's revenues decreased 16.1% to $240.9 million. On a constant currency basis, revenues declined 5.3% mainly due to soft results in France, Russia, and Eastern Europe primarily as a result of weakened consumer confidence.
The Asian segment's revenues fell 9.1% to $75.4 million due to weak results in South Korea. In constant currency, the segment's revenues slipped 7% from the year-ago period.
Net revenue in the North American Wholesale segment decreased 10.2% to $36.6 million. In constant currency, the segment's revenues slipped 7.2% y/y as several orders were shifted to the third quarter.
Net revenue in the Licensing segment slipped 5.8% to $26.8 million from the prior-year period mainly due to decline in royalty.
Fiscal Results
In fiscal 2015, Guess? reported earnings per share of $1.11, down 41.9% year over year. Earnings, however, surpassed the Zacks Consensus Estimate of $1.06 by 4.7%. Revenues slipped 5.9% year over year to $2.42 billion but came in line with the Zacks Consensus Estimate.
Other Financial Updates
During fourth-quarter fiscal 2015 earnings conference call, Guess? announced a quarterly dividend of 22.5 cents per share payable on Apr 17, 2015 to shareholders of record at the close of business on Apr 1.
Cautious Outlook for First-Quarter Fiscal 2016
Management is not optimistic about the upcoming quarter. It expects currency fluctuations to be a significant headwind in fiscal 2016 and will hurt top-line growth, gross margin, operating margin and earnings.
For first-quarter fiscal 2016, the company expects revenues to grow 1 to 2 percentage points (pp). Currency is expected to affect top line negatively by 9 pp. It expects to incur loss between 3 cents and 6 cents as against a loss of 3 cents suffered a year ago.
Fiscal 2016 Guidance
For fiscal 2016, Guess? expects net revenue to be in the range of negative 1 pp to positive 1 pp in constant currency compared to a decline of 5.9% in the prior year quarter. Currency headwinds are expected to have a negative impact of about 8 pp on consolidated revenue growth. Adjusted earnings per share are expected in the range of 75 to 90 cents compared with much lower than prior year earnings of $1.11 in fiscal 2015.
Guess? currently carries a Zacks Rank #4 (Sell). Some better-ranked companies in the apparel industry include Columbia Sports Inc. COLM, Gildan Activewear Inc. GIL and G-III Apparel Group Limited GIII. While Gildan Activewear sports a Zacks Rank #1 (Strong Buy), Columbia Sports and GIII Apparel carry a Zacks Rank #2 (Buy).
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