Guess?, Inc. Rides Europe and Asia to a Quarterly Beat and Raise

Guess? Inc. (GES 0.20%) announced second-quarter 2017 results on Wednesday after the market closed, highlighting solid growth led by both Europe and Asia, as well as profitability that arrived well above the clothing retailer's most recent financial guidance.

Let's get comfortable and take a closer look at how Guess? capped the first half of the year, as well as what investors should watch in the coming quarters.

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Guess results: The raw numbers

*For the quarter ended July 29, 2017. Data Source: Guess, Inc.

What happened with Guess this quarter?

• Revenue climbed 4.9% at constant currency.
• For perspective on Guess?'s decline in GAAP profitability, note last year's fiscal second-quarter results included a $22.3 million (or $0.24 per share) gain on the sale of a minority interest investment.
• On an adjusted (non-GAAP) basis, net income increased 30.4% to $16.1 million, and net income per share climbed 26.7% to $0.19.
• These results compared favorably to Guess?'s latest guidance, which called for revenue to increase between 2% and 4% at constant currency, and for earnings per share of $0.08 to $0.11.
• Americas wholesale revenue climbed 6.6% as reported and 6.8% at constant currency.
• Americas retail revenue declined 11.2% year over year (down 10.8% at constant currency). Americas retail comparable sales including e-commerce fell 10%.
• Europe revenue climbed 20.1% as reported and 18.8% at constant currency. Europe retail comparable sales including e-commerce climbed 5%.
• Asia revenue grew 17.5% as reported and 17.1% at constant currency. Asia retail comparable sales including e-commerce grew 7%.
• Licensing revenue fell 0.2%.
• Guess? has opened 4 new stores and closed 32 locations in the U.S. and Canada so far this year.

What management had to say

Guess? CEO Victor Herrero noted that sales growth in both Europe and Asia was driven by a combination of new stores, wholesale growth, and positive comps. Meanwhile, in the Americas retail segment, Guess? continues to focus on reducing its footprint and improving profitability.

Herrero elaborated:

This is truly an exciting time for Guess. We have now increased revenues for four consecutive quarters and we expect consolidated revenues to continue to increase despite store closures in North America. In Europe and Asia we have seen not only strong double digits growth for several consecutive quarters but also continuing margin expansion. We have achieved meaningful cost reductions, especially in our supply chain. We are accelerating the reduction of our footprint in the U.S., which currently represents less than 36% of our global sales. And finally we are significantly increasing the adjusted guidance for fiscal 2018 and are now expecting to grow top-line, adjusted operating margin and adjusted earnings per share compared to last year.

Looking forward

More specifically for the third quarter, Guess? expects revenue to increase between 4% and 6% (or 2% to 4% at constant currency), which should translate to a GAAP loss per share in the range of $0.07 to $0.04 and adjusted earnings per share of $0.08 to $0.11.

For the full fiscal year, Guess? now sees revenue increasing between 6% and 7.5% (or 4% to 5.5% at constant currency), marking an increase from previous guidance for reported 3.5% to 5% growth (albeit still 4% to 5.5% at constant currency). On the bottom line, Guess? expects full fiscal-year GAAP earnings per share of $0.34 to $0.42 (up from $0.32 to $0.42 previously) and adjusted earnings per share of $0.52 to $0.60 (up from $0.34 to $0.44 previously).

All things considered, this was a straightforward beat-and-raise scenario from Guess?, as the company continues to shift toward its most promising geographies. With shares up nearly 13% in after-hours trading as of this writing, it's clear the market is responding in kind.