Guess (GES) Plunges Over 20% After Missing Earnings

Shares of apparel and accessory retailer Guess (GES: Charts, News) plunged nearly 20% on Thursday after the company disappointed investors with lackluster earnings that missed analysts' estimates. For the second quarter, Los Angeles-based Guess earned 49 cents per share, or $42.9 million, on revenue of of $635.4 million.

This was a steep 29% drop in earnings and 6% decline in revenue from the prior year quarter. Analysts had expected Guess to earn 51 cents per share on revenue of $629.9 million. Daily Chart
The company attributed its weak earnings to troubles in the North American and European markets. In North America, revenue dropped 3% while retail same-store sales plunged 8.5%. Guess operates 511 retail stores in North America, compared to 490 stores a year earlier. Meanwhile, European revenues decreased 14.5% due to the weakness of the euro. Excluding the currency impact, European revenues only declined 1.9%, but the company reports earnings in U.S. dollars. Asia was Guess' only saving grace, posting 21% revenue growth. Both European and Asian revenue growth were negatively impacted by a strong U.S. dollar during the quarter. The company's wholesale segment posted a 5.1% decline in revenue, while its licensing segment reported a 4% decline. Although the company bought back 5 million shares, worth $140 million, during the quarter, CEO Paul Marciano faces a steep uphill battle to win back investors, who have watched Guess' stock plunge 20% over the past twelve months and 42% over the past five years. Marciano remained upbeat despite the company's weak earnings. "The second quarter was both rewarding and challenging for us," stated Marciano. "While store traffic remained down in North America, our strategy to elevate our women's business appears to be working. We are now focused on driving improvements in accessories, which has become increasingly competitive, and are also developing plans to refine our North American strategy where necessary to remain competitive." Marciano also noted that Guess' European business "remained stable," and that the double-digit growth in Asia has "exceeded expectations." Operating margin slid from 16.7% to 9%, primarily due to negative same-store sales on the company's fixed cost structure, increased occupancy and costs due to European expansion, increased advertising and marketing costs, as well as a bad debt provision from a Greek distributor. Product margins abroad were also squeezed by a strong U.S. dollar. However, Marciano warned that new initiatives would "take longer than expected" and that the "marketplace remains uncertain." Looking forward, Guess posted cautious guidance, stating that third quarter revenues are expected be in line with second quarter earnings, between $620 million and $630 million. Operating margin is expected to rise between 9% and 9.5%. Earnings per share are expected to be even lower than the second quarter, between 42 cents per share and 46 cents per share. Guess expects to finish fiscal 2013 with diluted earnings per share between $2.15 to $2.30 per share, on revenue between $2.62 billion and $2.65 billion. Operating margins are forecast to rise between 10.5% and 11%. Shares of Guess now trade at 9 times forward earnings with a 5-year PEG ratio of 1.14. The company also pays a quarterly dividend of 20 cents per share - a 3% yield at current prices. The stock is near the low end of its 52-week range of $24.23 to $37.15. Other News About GES Guess Misses in the Second Quarter Guess misses on the bottom line, and offers weak guidance. Guess Is Sharply Lower Following Q2 Report Guess slides over 20% after lackluster earnings. Other Stocks in the News Weak 4Q Comps for Bebe Stores More doom and gloom from the retail apparel sector. Hewlett-Packard Shares Drop as the Company Reports Biggest Quarterly Net Loss in its History HP makes history - in the wrong way. Copyright 2012 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Aug 24, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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