Guess Denim

Image source: Guess? Inc.

What happened

Shares of apparel company Guess? Inc. (NYSE:GES) slumped on Thursday following the release of a disappointing third-quarter report. While Guess managed to grow revenue, the company missed expectations badly and provided lackluster guidance. At 11:30 a.m. EST, the stock was down about 11%.

So what

Guess reported third-quarter revenue of $536.3 million, up 2.9% year over year but $15 million below the average analyst estimate. Europe and Asia showed strength, with sales in the regions rising 16.4% and 9.8%, respectively. The Americas were weak, with retail revenue off 4.7% and wholesale revenue off 4.3%.

"While I recognize the challenges we are facing in the Americas, I am thrilled that, due to our various revenue enhancement initiatives, our third-quarter revenues increased by 3%," said Guess CEO Victor Herrero. "We enjoyed strong double digit growth in Europe and in Asia, and we remain focused on improving our profitability in North America. As we reach the end of our transition year, I look forward to fiscal year 2018 with tremendous anticipation and excitement."

EPS came in at $0.11, down from $0.15 during the prior-year period and $0.03 short of analyst expectations. Gross margin dropped 1.7 percentage points year over year to 33.6%, driving down Guess' operating margin to 2.8%. That compares to 4% during the third quarter of last year.

Now what

Guess expects to grow fourth-quarter revenue by 3.5% to 7.5%, with EPS in the range of $0.40 to $0.50. This implies revenue of $681 million to $707 million, well below analyst expectations of $724 million. Analysts also expected Guess to guide for EPS of $0.60.

Guess's revenue and margins have been in decline since 2012, and the company's third-quarter results don't suggest that anything has changed. International sales growth was solid, but the Americas remains Guess' most important geographic region. The company drove middling sales growth during the quarter, but it was at the expense of profitability.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Guess?. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.