Guess: operating profit halved in second quarter

By

Olivier Guyot

Published
Aug 29, 2014

Second quarter business was terrible for Guess’ North American stores. The American group saw its operating profit plunge into the red in the region, falling by 145% with an operating loss of 3.5 million euros for the segment.

"Overall second quarter earnings were consistent with our expectations,” said CEO Paul Marciano. “But were short of our operational goals due to a soft environment in North America, where traffic and promotional activity have continued to put our brick and mortar stores under pressure. However, we are encouraged by our North American e-commerce business which grew by almost 50% in the second quarter."

The group said that it had carried out an analysis of its American fleet and announced plans to close 50 stores by the end of the 2016 fiscal year, which concludes at the end of this coming January. It also said that half of its stores will be renovated by the end of 2017.

Guess’ overall operating earnings declined by 51% to 22.6 million for its second quarter ending on August 2. Only its licensing segment, which fell by 1% to 19 million euros, remained more or less stable. Its operating profit in Europe registered at -38%, Asia at -55% and for North American wholesale business, at -39%.

The results have incited management to implement a plan to reorganize its North American retail segment as well as to "streamline its operational structure and reduce expenses" overall. It expects savings of 20 million dollars per year.

Over the last quarter, the group saw its sales fall by 5% (6% in constant currency) to 461 million euros (609 million dollars).

North American retail sales fell by 4% to 185 million euros, while European sales contracted by 6% to 178 million, Asia registering declines of -2% to 48 million, North American wholesale dropping by 8% to 29 million and licensing business remaining stable at above 20 million (-1%). The group admits that the difficulties concern more its womenswear and accessories than its menswear products which have held their ground.

In Europe, the group said that it had seen its shops achieve results in line with its forecasts, including stable sales in Italy. But its wholesale sales dropped and Guess expects double-digit declines by the end of the year.

A positive note though: the group has announced that European orders rose for spring-summer 2015.