Key Takeaways and Trends from Guess’s Q3 Earnings Release

Guess (NYSE: GES) released its third quarter fiscal 2018 results. For the Q3 quarter, the company’s revenues increased by 10% to $605 Million and Increased 13% in Constant Currency. Guess’s performance was boosted by its rising comparable store sales and e-commerce sales in both Europe and Asia (especially China), growth through digital initiatives, its well-positioned customer-centric strategies, and the building of its omni-channel capabilities.

In Q3, diluted earnings per share increased 8.3% to $0.13 compared to $0.12 for the prior-year quarter. Looking ahead, the company continues to focus on improving the customer experience in stores and online and improving assortments in compelling new product launches. Based on these factors the company forecasts 2019 fourth quarter sales to grow by 7.5% to 9% and adjusted earnings in the band of $0.69 to $0.76 per share. Please refer to our dashboard on Guess’s Q3 performance.

Key trends from Guess’s third quarter earnings are outlined below:

Growth in Europe and Asia –  Guess’s profitability in the wholesale business has been on a upward trend in Europe and Asia. In Q3 the European wholesale segment grew by 20.2% in U.S. dollars and 16.9% in constant currency, and the trend is expected to carry on in the coming quarters as well. This growth was propelled by a rise in comparable store sales, including e-commerce sales, and a host of store openings.  The e-commerce business in Europe was boosted by Guess’s own website along with the partnerships it forged with websites like Zalando, and the Retail comp sales, including e-commerce, increased 9% in U.S. dollars.

The company also doubled its capital allocation for the Asian stores and the e-commerce business in Asia strengthened by a greater presence on websites like Tmall, JD.com, and Guess.cn. Asia revenues increased 27.9% in U.S. dollars driven by a rise in store openings, and comparable store sales (which included e-commerce sales as well)  increased 17% in U.S. dollars.

Focus On Well-positioned customer-centric strategies and a steady focus on delivering a differentiated customer experience  – Guess continues to revamp business by improving the store experience, localizing assortments, and enhancing direct business. These measures facilitated incremental sales and increased store transactions through higher conversion rates.  A sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept Guess afloat in a competitive environment.

Focus On Higher Profitability And A Smaller Presence In North America – Due to a lack of footfall in the brick-and-mortar stores, Guess’s business has been suffering in North America for a few years. Hence, currently the company is gradually trying to reduce its footprint and increase its profitability in the region. For the Q3 quarter, Americas Retail revenues decreased 1.2% in U.S. dollars and Retail comp sales including e-commerce increased 3% in U.S. dollars. The company created a better balance between the American retail and wholesale businesses, while closing stores, improving its product offerings, and building a stronger online presence through celebrity endorsements, marketing, and promotions. For Q3, America’s Wholesale revenues increased 11.8%.

Guess’s rising e-commerce sales  –  Driven by the growing trend of online shopping, online sales of the company rose in every geography underlining this to be a global trend, especially in Europe and Asia. With rising disposable incomes and people continuing to spend more online, this channel has helped increase the share of the company’s top line.

Looking ahead, we believe that driven by the above trends, Guess is likely to grow further in Q4 and the rest of the FY 2019.