Weaker North American and Asian sales saw Guess lower its full Fiscal Year 2025 outlook, while overall growth for next year is pegged to its newer Rag & Bone and Guess Jeans brands.
Guess has been investing in the development of its “Rag & Bone and Guess Jeans brands, adding distribution capacity for both domestically and internationally,” cofounder and chief creative officer Paul Marciano. He added that customers have responded well to the company’s investments in Guess in the areas of new product introductions and increased marketing campaigns.
During the post-earnings conference call Tuesday, Guess CEO Carlos Alberini spoke briefly about tariffs and sourcing, adding that it has done “a lot of work” to reduce its dependency on China over the last few years. He noted that there is “plenty of flexibility” to move sourcing to other places, but cautioned that there are some categories where Chinese vendors are very strong and the company has to be careful not to compromise on quality.
And Alberini noted that while Mexico appears to be another target for tariffs, he emphasized that the company doesn’t have any significant sourcing there now. For the categories where it depends on Mexico, Alberini said it may have to pursue other alternative sources, adding that it “can depend more on South America and other parts.”
In general, Alberini said the company has made progress on a number of operational, strategic and financial objectives.
“Our company growth was fueled primarily by the addition of Rag & Bone, along with a modest increase in sales from our core Guess business,” he said of the third quarter results, adding that “all” operating segments posted revenue growth, with the exception of licensing, which was flat after the company decided to bring outerwear in-house. And he said that revenue growth in the quarter was slightly lower than expected due to the strength of the U.S. dollar.
European wholesale sales posted a mid-single digit sales increase, helped by some earlier than planned deliveries, while retail sales in Asia failed to meet expectations as store traffic remained under pressure. And in the Americas, wholesale sales rose 25 percent, but retail sales in both women’s and men’s businesses were down. Sales declines were registered across most accessory categories, as well as in footwear. One exception was women’s and men’s sweaters, which performed strongly in the quarter, helped by new products in the collections. Women’s outerwear, denim pants and activewear also did well.
As for the Rage & Bone business, acquired in the first quarter, Alberini said it “remains on a solid trajectory, and its direct-to-consumer trends were particularly strong in October.” He said the brand’s team, led by Andrew Rosen as executive chair, has been collaborating with Paul Marciano, and there are initiatives now in progress to “expand the business through new stores, product category and international expansion.”
He said growth will be focused on the continued expansion of the Guess brand, as well as other brands in the company portfolio, citing Rag & Bone and Guess Jeans.
Rag & Bone will see expansion through new stores, new and expanded product categories and entrance into new markets. Distribution in Europe will rely primarily on wholesale partners and retail stores in key cities. The company signed a new store lease in Amsterdam and is hunting for store locations in Munich, Dusseldorf, Stockholm, Copenhagen and Vienna. And the company is in discussion with potential partners in Mexico, the Middle East and Australia.
For Guess Jeans, under Nicolai Marciano’s leadership, Alberini said response to the newest collection “has been quite positive,” with wholesale accounts in Europe doing well. Guess Man will launch in January at the Pitti Uomo tradeshow in Florence, Italy. The brand has three stores in Europe, in Berlin, Amsterdam and near Milan. The brand is set to opent wo more stores, one in Tokyo and the other in Melrose in West Hollywood, Calif. And Macy’s has agree to include Guess Jeans at about a dozen stores in the U.S.
Alberini said the company adjusted its outlook to incorporate recent trends and external factors. “Freight costs, which have been volatile all year, given the Red Sea crisis, also moved against us again, and that too will negatively impact Q4,” he told investors. “On currencies, the recent strengthening of the U.S. dollar will put further pressure on Q4 revenues and margins. And last, we expect the lower earnings will result in a higher income tax rate for the year.”
Interim CFO Dennis R. Secor said the company took steps to protect its European business by accelerating deliveries from suppliers. Most of that inventory was in transit to company warehouses at the end of the third quarter.
“We anticipate now that freight costs will be higher to support our fourth quarter business, both because of higher ocean charges as well as additional air freight,” Secor said. He added that the incremental freight headwinds is estimated in the $5 million ranges, which will have “the most consequential effect on our European business.”
For the three months ended Nov. 2, the net loss was $23.4 million, or 47 cents a diluted share, against net income of $55.7 million, or 82 cents, a year ago. On an adjusted basis, earnings per share was 34 cents. Revenue rose 13.4 percent to $738.5 million from $651.2 million, which includes 14.1 percent increase in product sales to $705.5 million. The balance of revenue consisted of royalty income. Revenue growth in the quarter was driven primarily by its Rag & Bone acquisition. Results for the quarter also missed Wall Street’s expectations of adjusted diluted EPS of 37 cents on revenue of $747.4 million.
For the nine months, the net loss was nearly $21 million, or 42 cents a diluted share, againt net income of $82.9 million, or $1.30, in the same year-ago period. Revenue for the period was up 9.4 percent to $2.06 billion from $1.89 billion, including a 9.5 percent gain in product sales to $1.97 billion. The balance of revenue was from royalty income.
Based on the expectation that consumer sentiment and slow customer traffic in North America and Asia will continue during the fourth quarter, the company lowered full year guidance and now expects revenues “at or slightly below $3 billion.” GAAP diluted EPS was guided to the range of 70 cents to 82 cents, down from $1.92 to $2.14 in August when the company posted second quarter results.
For the fourth quarter, revenue was estimated to increase between 2.2 percent and 5.4 percent, with adjusted diluted EPS between $1.37 and $1.52.
