Guess Q2 earnings decline 16.7 percent

For the second quarter of fiscal 2016, the Guess recorded net earnings of 18.3 million dollars, a 16.7 percent decrease compared to 22 million dollars for the second quarter of fiscal 2015. Diluted earnings per share decreased 19.2 percent to 0.21 dollar, compared to 0.26 dollar for the prior-year quarter. The negative impact of currency on earnings per share was approximately 10 cents.

Elaborating on the company’s performance, Paul Marciano, Chairman of the Board and Chief Creative Officer, said, “I am pleased to report that second quarter results were better than our expectations. I am even more pleased by the hiring of Victor Herrero as our new Chief Executive Officer. Victor brings with him amazing experience and a deep understanding of retail. I am confident that he has all the required qualities to help write the next chapter for Guess."

Currency fluctuations impact performance

Total net revenue for the second quarter decreased 10.2 percent to 546.3 million dollars, from 608.6 million dollars in the prior-year quarter. In constant currency, total net revenue decreased 0.6 percent. The company's retail stores and e-commerce sites in the Americas generated revenue of 232.5 million dollars, a 4.7 percent decrease from 244 million dollars in the same period a year ago. Comparable store sales including the results of our e-commerce sites in the US and Canada decreased 2.8 percent in US dollars and was relatively flat in constant currency compared to the same period a year ago.

Net revenue from the company's Europe segment decreased 15.3 percent to 199.4 million dollars from 235.3 million dollars in the prior-year period. In constant currency, net revenue increased 3.7 percent. Net revenue from the company's Asia segment decreased 11.7 percent to 56.7 million dollars from 64.3 million dollars in the prior-year period. In constant currency, net revenue decreased 6 percent. Net revenue from the company's Americas wholesale segment decreased 15.4 percent to 32.4 million dollars from 38.3 million dollars in the prior-year period. In constant currency, net revenue decreased 9 percent.

Licensing segment net revenue decreased 5.5 percent to 25.3 million dollars from 26.8 million dollars in the prior-year period. Operating earnings for the second quarter of fiscal 2016 decreased 12.2 percent to 26.2 million dollars (including a 4.4 million dollars unfavorable currency translation impact), from 29.9 million dollars in the prior-year period.

Operating margins to suffer currency headwinds

Operating margin in the second quarter was down 10 basis points at 4.8 percent, compared to 4.9 percent in the prior-year quarter. Operating margin was negatively impacted by currency exchange rate fluctuations and charges related to legal matters. These decreases were mostly offset by overall product margin improvements relating to higher initial mark-ups in Europe and Americas Retail and less markdowns in Americas Retail.

Operating margin for the company's Americas Retail segment increased 420 basis points to 2.3 percent compared to negative 1.9 percent in the prior-year period. Operating margin for the company's Europe segment decreased 130 basis points to 9.1 percent compared to 10.4 percent in the prior-year period. The decrease in operating margin was driven primarily by lower gross margins due to the unfavorable impact from currency exchange rate fluctuations on product costs, partially offset by higher initial mark-ups. Operating margin for the company's Asia segment decreased 190 basis points to 1.6 percent compared to 3.5 percent in the prior-year period. The decrease in operating margin was driven by lower gross margins in South Korea.

Operating margin for the company's Americas Wholesale segment increased 160 basis points to 15.1 percent compared to 13.5 percent in the prior-year period. Operating margin for the company's licensing segment decreased 450 basis points to 88.5 percent compared to 93 percent in the prior-year period.

Earnings up in H1 but revenues decline

Net earnings for the six months ended August 1, 2015 were 21.6 million dollars, an increase of 9 percent compared to 19.9 million dollars for the six months ended August 2, 2014. Diluted earnings per share increased 8.7 percent to 0.25 dollar, compared to 0.23 dollar for the prior-year period. The negative impact of currency on earnings per share for the six months ended August 1, 2015 was approximately 11 cents.

Total net revenue decreased 9.4 percent to 1.03 billion, from 1.13 billion dollars in the prior-year period. In constant currency, total net revenue decreased 0.3 percent.

The company's retail stores and e-commerce sites in the Americas generated revenue of 446.7 million dollars, a 5.4 percent decrease from 472.3 million dollars in the same period a year ago. Comparable store sales including the results of e-commerce sites in the US and Canada decreased 4.3 percent in US dollars and 1.8 percent in constant currency compared to the same period a year ago.

Net revenue from the company's Europe segment decreased 14.6 percent to 336.8 million dollars from 394.4 million dollars in the prior-year period. In constant currency, net revenue increased 5.3 percent.

Net revenue from the company's Asia segment decreased 10.1 percent to 120.8 million dollars from 134.4 million dollars in the prior-year period. In constant currency, net revenue decreased 6 percent. Net revenue from the company's Americas wholesale segment decreased 10.2 percent to 69.6 million dollars from 77.6 million dollars in the prior-year period. In constant currency, net revenue decreased 3.8 percent.

Licensing segment net revenue decreased 2.3 percent to 51.2 million dollars from 52.4 million dollars in the prior-year period. Operating earnings increased 9.6 percent to 30.6 million dollars including a 3.2 million dollars unfavorable currency translation impact, from 27.9 million dollars in the prior-year period. Operating margin increased 50 basis points to 3 percent, compared to 2.5 percent in the prior-year period. The increase in operating margin was driven by overall product margin improvements relating to higher initial mark-ups in Europe and Americas retail and less markdowns in Americas retail.

Expects decline in Q3 and FY15 revenues

The company expects third quarter of fiscal 2016 ending October 31, 2015consolidated net revenues to decline between 4.5 percent and 3 percent in constant currency. Currency headwinds are expected to negatively impact consolidated revenue growth by approximately 8 percent, for a net decline between 12.5 percent and 11 percent. Operating margin is expected to be between 2 percent and 3 percent and includes 150 basis points of currency headwind. Diluted earnings per share are expected to be in the range of 0.08 dollar to 0.12 dollar.

The company, for the fiscal year ending January 30, 2016, 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 7.5 percent, for a net decline between 9 percent and 8 percent. Operating margin is expected to be between 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 0.89 dollar to 1.02 dollar.