Apparel retailer Guess’, Inc. (GES - Analyst Report) reported fourth-quarter fiscal 2016 results, wherein earnings missed the Zacks Consensus Estimate, while revenues beat the same.
Guess’ reported earnings of 57 cents per share, which declined 9.52% from the prior-year figure of 63 cents due to top-line weakness and currency headwinds. Currency impacted earnings by 19 cents. Earnings also missed the Zacks Consensus Estimate of 58 cents. However, earnings were within management’s expectation of 53 cents to 62 cents.
Revenues and Margins
Revenues slipped 6% to $658.3 million mainly due to currency headwinds. On a constant currency basis, revenues gained 1%, in line with management’s guidance range of 1.5% decline to 1.5% increase. Revenues beat the Zacks Consensus Estimate of $655 million.
Total gross margin decreased 90 basis points (bps) to 36.5% primarily due to the negative currency impact due to softer top line. The decline in the gross margin was more than the company’s estimates because of higher-than-planned promotional expenses at the Americas Retail segment.
Operating profit decreased 4.4% to $70.0 million from $73.2 million in the prior-year period. Operating margin in the quarter was relatively flat at 10.6%.
Segment Results
Beginning second-quarter fiscal 2016, Guess’ changed the names of its "North American Retail" and "North American Wholesale" segments to "Americas Retail" and "Americas Wholesale," respectively.
Revenues from retail stores and e-Commerce sites at the Americas Retail segment declined 3% but gained 1% on a constant currency basis. Consolidated comparable store sales (comps) went up 2% year over year on a constant currency basis, including e-Commerce sales.
Including the currency impact, consolidated comps dipped 1%. This was due to lower average unit retail sales overall. E-Commerce, however, had another strong quarter and delivered top-line growth of 9%, marking the 18th consecutive quarter of growth in the U.S. and Canada. Women’s category comps were positive driven by dresses, knit tops and wovens.
The European segment's revenues decreased 5%. On a constant currency basis, revenues increased 6%. Retail comps in the region were up in the high-single digits due to low double-digits gain in Spain and Portugal and a high single-digit comp increase in Italy.
Revenues from Asia fell 18% due to a shift in wholesale shipments to the franchises in China into fourth-quarter fiscal 2015. In constant currency terms, revenues slipped 14% from the year-ago period.
Net revenue in the American Wholesale segment decreased 9% due to softness in the U.S. wholesale business. In constant currency, the segment's revenues declined 1% year over year.
Royalties generated from sales by licensee partners were down 7% to $25 million, primarily due to softness in smaller licensees.
Fiscal Results
Fiscal 2016 earnings per share of 96 cents declined 14% from the prior-year due to weak top line and currency headwinds. Currency impacted earnings by 43 cents. Earnings also missed the Zacks Consensus Estimate of 98 cents. However, earnings were within management’s expectation of 93 cents to $1.02.
Revenues slipped 9% to $2.2 billion mainly due to currency headwinds. On a constant currency basis, revenues slipped 1%, in line with management’s expectation of 1.5% to 0.5%. Revenues met Zacks Consensus Estimates.
Other Financial Update
During the fourth quarter, the company’s board approved a quarterly cash dividend of 22.5 cents per share on the company's common stock. The dividend will be payable on Apr 15, 2016 to shareholders of record at the close of business as on Mar 30.
Guidance for First-Quarter Fiscal 2017
The company expects net revenue decline of 1.5% to 0.5%, on a constant currency basis. Currency is likely to have a roughly 2% negative impact.
The company expects operating margin in the range of negative 5.0% and negative 4.0%, including 130 bps currency headwinds. Adjusted loss per share is now expected in the range of 20 cents to 17 cents.
Guidance for Fiscal 2017
For fiscal 2017, adjusted earnings per share are now expected in the range of 65 cents to 85 cents. This compares unfavorably with 96 cents reported in fiscal 2016. The guidance includes unfavorable currency impact of 11 cents per share.
The company expects net revenue to gain 7% to 9%, on a constant currency basis. Currency is expected to have a negative impact of about 1%.
Operating margin is expected between 4.0% and 5%, including a 50-bps impact from the currency headwind.
Guess’ currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the consumer discretionary industry are Michael Kors Inc. (KORS - Analyst Report), Francesca’s Holdings Inc. (FRAN - Snapshot Report) and K12 Inc. (LRN - Snapshot Report), all carrying a Zacks Rank #2 (Buy).
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