Guess foresees Q3 woes on autumn range weakness, slashes outlook, shares plunge

Struggling casualwear retail giant Guess late Wednesday issued a stark Q3 warning after reporting a steeper-than-expected dip in Q2 profit on continuing soft demand in North America and Europe. Admitting weak demand for its autumn collection in North America, Guess slashed its guidance for both Q3 and the full year and its shares fell 8% to $23.52 in after-hours trading, a new low for the year. CEO Paul Marciano said the North American market was soft due to weak traffic and promotional activity, adding the company would rationalise its portfolio in its core market.

By the end of the current fiscal year, Guess plans to close a further 50 of its 488-store North American portfolio having already cut the figure to 507 a year ago.

“In addition to these 50 stores, 50% of our North American store base will come up for renewal in the next three-and-a-half years, which will give us flexibility to optimise our real estate portfolio,” he said during a conference call.

Guess posted a 45% dip in Q2 net earnings to $22m/$0.26 per share, down from $39.9m/$0.47 a year ago. Analysts had expected earnings of $0.29 per share for the quarter.

Q2 sales, meanwhile, fell 4.8% to $608.6m, short of the $618m analysts expected.

Guess said sales in North America retail stores fell 4% and same-store sales fell 5.4%. On the upside, Guess said North American e-commerce business increased by almost 50% in the quarter.

North American wholesale sales also fell 8%.

Europe sales dipped 6% on-year and sales in Asia-Pacific declined 2.4%.

Gross margin fell to 35.6% from 38.9% last year, and operating margin dipping to 4.9% from 9.5% last time.

For Q3, Guess expects earnings of $0.15-$0.20 per share on sales of $590m-$600m. Analysts expect earnings of $0.37 per share on sales of $613m.

For fiscal year 2015, earnings are expected to range $1.05-$1.20 per share on sales of $2.44bn-$2.48bn, down from $1.40-$1.60 and $2.53bn-$2.57bn previously expected. Analysts estimated earnings of $1.46 per share on sales of $2.53bn.

As of August 2, Guess directly operated 837 stores out of a total of 1,685 stores.

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