Guess? 4Q Earnings Beats, Misses Year-Ago
Guess?, Inc. (GES) reported its fourth quarter fiscal 2013 results with earnings of 95 cents per share, beating the Zacks Consensus Estimate of 86 cents by 10.5%. Earnings were down 9.5% from the year-ago earnings per share of $1.05 due to lower consumer demand and currency headwinds. However, earnings were at the high end of the company’s guidance range of 85 to 95 cents.
Revenues and Margins
Revenues in the quarter climbed 5.1% to $815.1 million backed by higher sales in all the segments of the company. Revenue exceeded the Zacks Consensus Estimate of $786.0 million, while it exceeded management’s expectation of $780 million to $800 million. However, on a currency neutral basis, revenues increased 4.2%.
The operating margin shrank 280 basis points year over year to 14.7% in the fourth quarter, owing to increased occupancy and selling costs in Europe, negative same store sales and increased marketing expenses. The increase in promotional expenses in North America and pricing changes in Canada also led to lower product margins.
Segment Results
The North American stores generated revenues of $350.0 million in the fourth quarter, up 1.9% from the prior year quarter. Comparable store sales shrank 6.3% from the year-ago quarter, due to weather change and recent tax change. However, higher square footage and strong e-commerce business offset the comparable store sales decline and boosted growth in revenue.
The European segment’s revenue climbed 3.2% to $300.3 million in the fourth quarter, driven by growing business in Russia and Germany. On a currency neutral basis, segment revenue increased 3.3%. In Europe, Italy and France remained soft spots for the company as shipments continued to decline.
The Asian segment’s revenue increased 19.2% to $84.2 million, driven by double-digit growth from South Korean and Greater China businesses. On a currency neutral basis, segment revenue increased 14.3%.
Net revenue in the North American Wholesale segment increased 25.7% to $50.9 million.
Net revenue in the Licensing segment slipped 2.1% to $29.8 million, from $30.4 million in the prior-year period.
Full Year Results
For the full year 2013, Guess? reported earnings of $2.15, beating the Zacks Consensus Estimate of $2.07 by 3.9%. The results declined by 29.5% from the year-ago earnings of $3.05. However, earnings were in the higher limit of the company’s guidance range of $2.05 to $2.15.
Revenues and Margins
Fiscal 2013 revenues were down 1.1% to $2.66 billion. Revenue exceeded the Zacks Consensus Estimate of $2.63 billion and management’s expectation range of $2.62-$2.64 billion. However, on a currency neutral basis, revenues increased 1.6%.
Balance Sheet and Cash Flow
Guess? ended the fourth quarter of 2013 with cash and cash equivalents of $329.0 million compared with $287.3 million in the previous quarter. Long-term liabilities stood at $216.2 million compared with $221.4 million in the prior quarter.
Net cash provided by operating activities was $172.9 million compared with $51.3 million in the prior quarter.
In 2013, the company invested $140 million to repurchase 5 million shares and paid a special dividend of $1.20 per share.
Guidance
For the first quarter of fiscal 2014, the company expects revenue in the range of $545 to $560 million, operating margin in the range of 1.0% to 2.0%, and earnings in the range of 5 to 10 cents per share.
For 2014, the company expects earnings in the range of $1.70 to $1.94 per share.
Net revenue is expected to be in the range of $2.60 billion to $2.64 billion. Operating margin is now expected in the range of 8.5% to 9.5%.
The Zacks Consensus Estimate is pegged at 28 cents and $2.30 per share for the first quarter and fiscal 2014, respectively. Therefore, the guidance was clearly disappointing.
Conclusion
Guess? posted a decent fourth quarter with the bottom line surpassing the Zacks Consensus Estimate. Revenues also encourage us as it exceeded our expectation. However, low comparable store sales due to macroeconomic uncertainty restricted revenue growth.
Guess? currently carries a Zacks Rank #2 (Buy). Other stocks like Hanesbrands Inc. (HBI), Gildan Activewear (GIL) and PVH Corp (PVH) also with a Zacks Rank #2 (Buy), are worth considering.
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