Guess? Inc. (GES) reported a mixed bag of results for the second quarter of fiscal 2025, showcasing a combination of growth and challenges. While the top line saw an increase year-over-year, the bottom line took a hit compared to the same period last year and fell short of analysts’ expectations.
The company attributed the decline in earnings to a strategic decision to significantly ramp up marketing investments, primarily aimed at supporting the international expansion of its brands, including the core Guess brand and recent acquisitions like Guess Jeans and rag & bone. This increased spending, although beneficial for long-term growth, impacted the current quarter’s bottom line.
Despite the challenges, Guess? is demonstrating a proactive approach to navigating the current economic environment. The company is actively managing costs and inventories, while simultaneously investing in future growth through marketing campaigns, new store openings, and infrastructure enhancements. The acquisition of rag & bone is believed to have contributed positively to the company’s performance.
Key metrics for the quarter highlight this mixed performance:
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Revenue:
Net revenues reached $732.6 million, representing a 10% increase compared to the previous year. On a constant-currency basis, revenue rose by 13%, driven by the Rag & Bone acquisition and strong wholesale performance in Europe and the Americas. All segments, except Asia, saw top-line growth.*
Earnings:
Adjusted earnings per share came in at 42 cents, missing the Zacks Consensus Estimate of 44 cents. The bottom line declined by 42% from the previous year’s earnings of 72 cents per share.*
Margins:
Gross margin contracted slightly to 43.7%, down from 44.3% in the prior-year period. Selling, general, and administrative (SG&A) expenses, as a percentage of sales, increased to 38.7% from 34.6% in the previous year.The company’s segment performance showcased varied results:
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Americas Retail:
Revenues rose 8% in US dollars and 9% on a constant-currency basis, but comparable sales (including e-commerce) declined by 10% in both measures. The segment’s operating margin fell to 1.5% from 7.6% in the previous quarter.*
Americas Wholesale:
Revenues soared 93% on a reported basis and 94% on a constant-currency basis. The segment’s operating margin declined to 18.9% from 25.3% due to the impact of newly acquired businesses.*
Europe:
Revenues increased 5% on a reported basis and 8% on a constant-currency basis. Retail comparable sales (including e-commerce) grew 1% on a reported basis and 4% on a constant-currency basis. The segmental operating margin was 9.8%, down from 12.9% year over year.*
Asia:
Revenues declined 8% on a reported basis and 4% on a constant-currency basis. Retail comparable sales (including e-commerce) fell 14% on a reported basis and 10% on a constant-currency basis. The operating margin in the segment stood at negative 2.3%, down from negative 0.9% year over year, primarily due to lower revenues and increased expenses.Despite the mixed performance, Guess? is taking steps to enhance shareholder value:
* The company announced a quarterly dividend of 30 cents per share payable on September 27, 2024, to shareholders of record as of September 11.
* In the fiscal second quarter, Guess? repurchased nearly 2.3 million shares for $50 million, leaving $139.8 million in remaining capacity under its share repurchase program.
Looking ahead, Guess? has adjusted its fiscal 2025 outlook to reflect the current weaker consumer environment:
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Revenue Growth:
The company projects revenue growth between 9.5% and 11%, down from the previous forecast of 10.7% to 12.7%.*
Adjusted Operating Margin:
The adjusted operating margin is expected to be between 7.3% and 7.8%, revised from the earlier forecast of 7.7% to 8.5%.*
Adjusted Earnings per Share:
Adjusted earnings per share are expected to be between $2.42 and $2.70, down from the previous range of $2.62 to $3.00.The company remains committed to long-term growth and expects to achieve a free cash flow of $100 million for fiscal 2025.
Guess?’s stock has experienced a decline of 13.5% in the past three months, compared to a 2.8% decline for the industry. The company is currently rated a Zacks Rank #3 (Hold).
