It is hard to believe that retailers are undergoing a bad phase. Some of the prominent retailers, such as Guess? (GES, Financial), indicate the same. Shares of Guess have dropped 34.1% since the beginning of this year and continue to suffer from the last year. Various factors such as lower demand, a general shift to online shopping and lower foot traffic are responsible for the decline.
Guess beat the Street’s estimates in one of the last four quarters. Also, the retailer registered a lackluster quarter very recently. The numbers were mixed, wherein the top line missed the Street estimates and the bottom line was in line. Further, the company provided a weak guidance for the year, which further disheartened the investors. Let’s take a look.
Mixed bag of results
Revenue dropped 4% to $589.8 million, as compared to the previous year. This was lower than the analysts’ estimate of $595.3 million. However, if we exclude the effects of currency fluctuations, the top line was better. The retailer witnessed lower sales as store traffic dropped significantly as compared to the prior year. Same store sales in North America slipped 4.8%, despite an increase in consumer spending and a decline in oil prices, which has forced customers to shop more.
The gross margin of the company declined to 36.3% from 37.2% in the previous year. Margins were affected by factors such as lower sales and higher advertising, leading to the shrinkage. The bottom line was, however, better than what analysts were looking for. Earnings dropped 43% to $0.24 per share, as against the estimate of $0.18 per share. Further, the apparel retailer is trying to incorporate ways to cut costs, which should help in boosting the bottom line.
Delving deeper
Sales in the international market were dull. Revenue from Europe slipped 5.5% to $189.9 million. This was mainly due to lower foot traffic in stores due to unreasonably warm weather, which kept customers away from stores. But, if we exclude the currency fluctuations, comps declined 3.5% only.
Revenue from Asia also fell 2% to $71.3 million, over last year. Sales were affected by weakness in markets such as Korea and China. However, strengths in Macau and Hong Kong partially offset the losses from China.
Nonetheless, there were a number of bright spots, including the North American Wholesale segment. North American wholesale segment registered an increase in comp sales. However, due to the loss of many wholesale partners, the overall revenue from the region was flat.
The e-commerce business was also one of the best performing segments. Online sales jumped a whopping 40% over last year’s quarter, owing to the efforts of the company and the growing popularity of online shopping.
It is indeed important to change as per the changing trends in the society. However, despite these efforts, Guess provided a weak guidance which failed to please the Street, shattering all hopes of investors.
Conclusive thoughts
Weakness in the overall market for retail and the decline in customers’ interests to spend have been the major hurdles for the company. Further, lower traffic at the brick-and-mortar stores is another setback. However, the retailer is making efforts to boost its e-commerce operations, increase its promotions and cut its costs at the same time. These factors can be helpful in the future. Until then, investors should watch this company closely since taking positions might not be the right thing to do.
