Guess Improves Forecasts

For the first quarter of fiscal 2016, Guess recorded net earnings of $3.3 million, compared to a net loss of $2.1 million for the first quarter of fiscal 2015. Diluted earnings per share was $0.04, compared to diluted loss per share of $0.03 for the prior-year quarter, an increase of $0.07 per share.

Paul Marciano, Chief Executive Officer, commented, «Overall first quarter results were better than our expectations, mainly driven by tight expense management. In North America, we saw improvements in the women’s category, and Marciano delivered another quarter of good performance with comp sales up in the mid-single digits. Our e-commerce business continued to experience solid top-line growth of almost 14%. In Europe, our retail stores performed above expectations and delivered positive comps.»

Mr. Marciano continued, «So far during the second quarter, we continue to see improvements in these same areas. In North America, Women’s products are trending in line with the first quarter and Marciano remains strong with comp sales up in the high-single digits. In Europe, our retail stores are now comping up in the mid-single digits. We are very encouraged by the first quarter performance and early reads on the second quarter, and we will continue to focus on executing on our strategic initiatives aimed at improving the Company’s profitability.»

Total net revenue for the first quarter of fiscal 2016 decreased 8.4% to $478.8 million, from $522.5 million in the prior-year quarter. In constant currency, total net revenue was roughly flat compared to the same prior-year period. Refer to the accompanying tables for a summary of the impact of foreign currency exchange rate fluctuations on the Company’s net revenue.

Operating earnings for the first quarter of fiscal 2016 was $4.4 million (including a $1.2 million favorable currency translation impact), compared to an operating loss of $2.0 million in the prior-year period, an increase of $6.3 million. Operating margin in the first quarter increased 130 basis points to 0.9%, compared to negative 0.4% in the prior-year quarter.

The increase in operating margin was driven by the favorable impact from business and segment mix and overall product margin improvements relating to less markdowns and higher initial mark-ups in North American Retail. These increases were partially offset by negative impact on the Company’s fixed cost structure from negative same store sales in North America and the unfavorable impact from currency exchange rate fluctuations.

Other net income, which primarily includes net unrealized and realized gains on non-operating assets, was $2.6 million for the first quarter of fiscal 2016, compared to other net expense of $1.1 million in the prior-year quarter. The Company’s effective tax rate increased to 41.5% for the first quarter of fiscal 2016, compared to 32.0% in the prior-year quarter.

The Company’s expectations for the second quarter of fiscal 2016 ending August 1, 2015, are as follows:

• Consolidated net revenues are expected to decline between 3.5% and 1.5% in constant currency. Currency headwinds are expected to negatively impact consolidated revenue growth by approximately 9.5%, for a net decline between 13.0% and 11.0%.
• Operating margin is expected to be between 3.0% and 4.0% and includes 170 basis points of currency headwind.
• Diluted earnings per share are expected to be in the range of $0.12 to $0.16. The estimated impact on earnings per share of the currency headwinds is roughly $0.12.

The Company updated its outlook for the fiscal year ending January 30, 2016, which is now as follows:

• Consolidated net revenues are expected to range between a decline of 1.5% and an increase of 0.5% in constant currency. Currency headwinds are expected to negatively impact consolidated revenue growth by approximately 7%, for a net decline between 8.5% and 6.5%.
• Operating margin is expected to be between 5.0% and 6.0% and includes 130 basis points of currency headwind.
• Diluted earnings per share are expected to be in the range of $0.86 to $1.02. The estimated impact on earnings per share of the currency headwinds is roughly $0.45.

The Company’s guidance assumes that foreign currency exchange rates remain at prevailing rates.