Guess Q3 net earnings witness 40.1 percent decline

For the third quarter of fiscal 2016, Guess reported net earnings of 12.4 million dollars, a 40.1 percent decrease compared to 20.8 million dollars for the third quarter of fiscal 2015. Diluted earnings per share decreased 37.5 percent to 0.15 dollar, compared to 0.24 dollar for the prior-year quarter. The negative impact of currency on earnings per share in the third quarter of fiscal 2016 was approximately 13 cents.

“I am pleased to report that third quarter results were better than our expectations. Our European retail business was especially strong with a double digit comp sales increase for the quarter for the first time in five years,” said Victor Herrero, Chief Executive Officer, adding, “I am very pleased with the progress we have made on the first three initiatives I identified on our last earnings call. Most critically, on the third initiative, to reinforce a culture of purpose and accountability, I am laser focused on driving the organization to raise the level of execution as this will be a critical enabler of successful achievement of our strategies.”

Negative impact of currency fluctuations on Q3 results

Total net revenue for the third quarter decreased 11.7 percent to 521 million dollars, from 589.8 million dollars in the prior-year quarter. In constant currency, total net revenue decreased 3.9 percent. Operating earnings decreased 16.2 percent to 20.8 million dollars including a 2.5 million dollars unfavourable currency translation impact, from 24.9 million dollars in the prior-year period. Operating margin decreased 20 basis points to 4 percent, compared to 4.2 percent in the prior-year quarter.

Operating margin for the company's Americas retail segment increased 340 basis points to negative 0.9 percent in the third quarter, compared to negative 4.3 percent in the prior-year period. Operating margin for the company's Europe segment decreased 20 basis points to 3.8 percent compared to 4 percent in the prior-year period, due to lower gross margins. The lower gross margins were driven primarily by the unfavourable impact from currency exchange rate fluctuations on product costs, partially offset by higher initial mark-ups. Operating margin for the Asia segment increased 170 basis points to 4.7 percent in the third quarter compared to 3 percent in the prior-year period.

Operating margin for the Americas wholesale segment decreased 560 basis points to 20.5 percent compared to 26.1 percent in the prior-year period. Operating margin for the licensing segment increased 140 basis points to 89.5 percent in the third quarter compared to 88.1 percent in the prior-year period.

Financial highlights for the nine-months

Net earnings for the nine months ended October 31, 2015 were 34.1 million dollars, a decrease of 16.2 percent compared to 40.6 million dollars for the nine months ended November 1, 2014. Diluted earnings per share decreased 14.9 percent to 0.40 dollar, compared to 0.47 dollar for the prior-year period. The negative impact of currency on earnings per share for the nine months ended October 31, 2015 was approximately 24 cents.

Total net revenue decreased 10.2 percent to 1.55 billion dollars, from 1.72 billion dollars in the prior-year period. In constant currency, total net revenue decreased 1.6 percent. Operating earnings decreased 2.6 percent to 51.4 million dollars including a 5.7 million dollars unfavourable currency translation impact, from 52.7 million dollars in the prior-year period. Operating margin increased 20 basis points to 3.3 percent, compared to 3.1 percent in the prior-year period.

Operating margin for the company's Americas retail segment increased 270 basis points to negative 0.6 percent in the first nine months compared to negative 3.3 percent in the prior-year period. Operating margin for the Europe segment decreased 20 basis points to 4.2 percent compared to 4.4 percent in the prior-year period. Operating margin for the Asia segment increased 80 basis points to 4.6 percent compared to 3.8 percent in the prior-year period. Operating margin for the company's Americas wholesale segment decreased 230 basis points to 18.2 percent compared to 20.5 percent in the prior-year period, driven by lower product margins due primarily to lower initial mark-ups. Operating margin for the company's licensing segment decreased 80 basis points to 89 percent compared to 89.8 percent in the prior-year period.

Declared dividend, announces Q4 outlook

The company's Board of Directors has approved a quarterly cash dividend of 0.225 dollar per share on the company's common stock.

The company's expectations for the fourth quarter of fiscal 2016 ending January 30, 2016 include consolidated net revenues in the range between a decline of 1.5 percent and an increase of 1.5 percent in constant currency. Currency headwinds are expected to negatively impact consolidated revenue growth by approximately 5.5 percent, for a net decline between 7 percent and 4 percent. Operating margin is expected to be between 11 percent and 12 percent and includes 170 basis points of currency headwind. Diluted earnings per share are expected to be in the range of 0.53 dollar to 0.62 dollar.

For the fiscal year ending January 30, 2016, the company expects consolidated net revenues to decline between 1.5 percent and 0.5 percent in constant currency. Currency headwinds are expected to negatively impact consolidated revenue growth by approximately 8 percent, for a net decline between 9.5 percent and 8.5 percent. Operating margin is expected to be between 5.5 percent and 6 percent and includes 130 basis points of currency headwind.

Diluted earnings per share are expected to be in the range of 0.93 dollar to 1.02 dollars. The estimated impact on earnings per share of the currency headwinds is approximately 0.40 dollar.