Guess’s Q3 FY 2017 Results Showed Significant Recovery In Its International Business

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Guess’s Q3 FY2017 results were released on November 30th. In this quarter, the company could finally show some growth in its top line as opposed to its last few quarters of revenue declines. Though its operating loss continued, the year-on-year decline was also less than that of its previous quarters. This implies that Guess’s implementation of its strategic initiatives, as was proposed by its CEO, Victor Herrero, has been reaping substantial benefit. The company had been allocating more of its capital resources to grow its international business that accounts for 60% of its sales, as a result the international business continued to outperform the domestic one. The most significant growth for the company was in its European region, where it witnessed both top line and bottom line growth. Guess’s focus on its Asia division also seemed to have reaped benefits as the revenues from this segment grew by 10% year-on-year as opposed to a 6% y-o-y decline in Q2 FY2017. We expect Guess to continue recovering further in the future.

q3fy17

The European Business Grew The Most

The growth in Europe was due to the opening of new stores, higher footfalls and conversion, and a better product array on offer. The growth of the European business implies that the e-commerce penetration in this region as a percentage of retail sales might increase and reach the levels of that of its North American business by the end of this year.

The European wholesale business continued expanding steadily and this was the second consecutive season of growth that was bolstered by the opening of 26 new stores in areas including Italy, France, Belgium, Spain, Portugal, Switzerland, Turkey, Finland, the United Kingdom, Russia, and Poland. The number of new stores in this region is expected to reach around 55 by the end of this year and the company has so far opened 41 stores.

Asia Recovered Significantly

The revenue growth in Asia came as  a result of new store openings and due to positive comparable sales in Greater China. Fourteen stores were opened in Asia in the third quarter. The company plans on opening 65 stores in the region by 2016 and it has been on track so far.

 

Recovery Measures Are Being Taken For The Americas

Guess’s America retail sales continued with its decline mostly due to the reduction in the per unit price of the product even though the number of orders remained the same as the third quarter last fiscal year.

The company had charted out a four-point plan to improve performance in North America, namely, 1. Rent reduction, where it is estimated to gain a savings of around $9 million through lease negotiations; 2. Store closures, where it has closed 52 stores since last year and aims in closing 50 additional stores by the end of next year. The gain of operating income through this move is estimated to be around $11 million; 3. Forming sourcing networks in low cost regions such as Bangladesh and building relationships with high quality suppliers; and 4. Better digital initiatives to boost sales in the region.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Guess

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