Guess? Q3 Earnings Lag Estimates, View Cut Amid External Challenges
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Guess?, Inc. GES posted third-quarter fiscal 2025 results, wherein the top and bottom lines fell short of the Zacks Consensus Estimate and earnings declined year over year. Revenues increased year over year, mainly backed by the rag & bone buyout (concluded in April 2024) and modest growth in the company’s core businesses.
The company is lowering its earnings and revenue outlook due to external challenges, including currency fluctuations, elevated freight costs and increased taxes. GES also anticipates that weak consumer sentiment and sluggish customer traffic in North America and Asia will continue to negatively affect its business in the fourth quarter. Despite these near-term challenges, the company remains focused on advancing its vision for growth and is committed to pursuing opportunities for long-term success in the coming year.
GES’s Quarterly Performance: Key Metrics & Insights
GES posted adjusted earnings of 34 cents per share, which missed the Zacks Consensus Estimate of 43 cents and declined 31% year over year.
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Guess?, Inc. Price, Consensus and EPS Surprise
Guess?, Inc. price-consensus-eps-surprise-chart | Guess?, Inc. Quote
Net revenues amounted to $738.5 million, up 13% year over year, while missing the consensus mark of $751 million. On a constant-currency (cc) basis, net revenues rose 14%. The strong performance was driven by the rag & bone acquisition and modest growth in core Guess businesses. All operating segments saw revenue growth, except for the Licensing segment, which was impacted by the internalization of the outerwear business, resulting in flat revenues.
While Europe performed strongly, North America and Asia faced a more challenging environment, with slow customer traffic in direct-to-consumer channels.
Gross margin contracted to 43.6% from 44.7% reported in the year-ago quarter. As a percentage of sales, SG&A expenses increased to 37.8% from 36% in the prior-year quarter.
Adjusted earnings from operations were $42.8 million, down 26.1% from $57.9 million reported in the year-ago quarter. The adjusted operating margin was 5.8%, down from 8.9% reported in the same quarter last year. This downtick was mainly caused by increased expenses and the unfavorable impact of the channel mix.
Decoding GES’s Segmental Performance
Revenues in the Americas Retail segment rose 12% in U.S. dollars and 14% at cc. However, retail comparable sales, including e-commerce, declined 14% in U.S. dollars and 12% at cc. The operating margin in the segment was negative 4.3%, down 9.6% year over year. This decline was caused by the adverse effects of negative comparable sales, higher expenses and increased markdowns.
Americas Wholesale revenues soared 79% on a reported basis and 83% at cc. The segment’s operating margin declined 3.4% to 25.7% due to the impact of newly acquired businesses.
The Europe segment’s revenues increased 7% and 6% on a reported basis and at cc, respectively. Retail comp sales (including e-commerce) moved up 8% on a reported basis and 7% at cc. The segmental operating margin was 8.8%, down 1.5% year over year, due to higher expenses and the impact of newly acquired businesses. This was partially offset by lower markdowns and the favorable effect of higher revenues.
Asia revenues inclined 2% on both reported basis and at cc. Retail comp sales (including e-commerce) fell 17% and 16% on a reported basis and at cc, respectively. The operating margin in the segment was negative 2%, down 3% year over year. This downside was primarily due to lower product margins and reduced revenues, partially offset by lower expenses.
Licensing revenues remained flat on both reported basis and at cc. Segmental operating margin was 91.8% compared with 93.1% in the year-ago quarter. The reduction in the operating margin was due to increased expenses.