Guess? Inc. (GES) delivered record earnings per share (EPS) of 72 cents in its second quarter ended July 31, 2010, beating the Zacks Consensus Estimate of 69 cents. Earnings were also 13% above 64 cents reported in the year-ago quarter and beat the company’s guided range of 65 cent to 68 cents.
The company’s expansion in Europe and Asia has paid off, with the regions contributing more than half the quarter’s revenue growth. This is commendable considering the headwinds caused by the stronger U.S. dollar as well as the increasing promotional competition in U.S. retail.
Total revenue increased 10.5% year over year to create another record of $577.1 million, surpassing the Zacks Consensus Estimate of $575 million. The revenue, however, surpassed the company’s guided range of $560 to $575 million. Revenue growth was positive across all segments, particularly led by the Asia segment, which posted 43% growth followed by a 33% increase in the North American wholesale segment.
Cost & Margin Performance
Expenses increased in the quarter with cost of product sales climbing 11.8% to $324.9 million, and selling, general and administrative expenses hiking 10.9% to $155.9 million. Based on revenue, cost of products sold increased 70 basis points to 56.3% and selling general and administrative expenses upped 9 basis points to 27%.
Gross profit spiked 9% to $252.2 million but gross margin dipped 70 basis points to 43.7%. Operating income edged up 5.7% to $96.3 million. Operating margin of 16.7% suffered a contraction of 70 basis points due to the impact of lower North American product margins and higher occupancy costs, given the company's global retail expansion.
Segment Performance
The North American retail segment revenues increased 6.3% to $241.8 million. Comparable store sales rose 1.7% in local currency and 3.5% in U.S. dollars in the quarter compared with the year-ago period. The segment’s operating profit, however, dropped 13% to $26.3 million, with operating margin contracting 240 basis points to 10.9%.
The North American wholesale segment’s revenues climbed 33.3% year over year to $44.3 million, and its operating profit jumped 29% to $10.7 million. The segment’s margin of 24.2% suffered an 88 basis-point decline.
Europe segment’s revenues went up 5.8% to $222.3 million driven by the company’s international expansion initiatives. The segment’s operating income dipped 4% to $50.3 million, and its operating margin fell 230 basis points to 22.6%.
The Asia segment’s revenues surged 42.8% to $42 million in the quarter as the company’s expansion efforts paid off. The segment’s operating profit increased a whopping 265% to $5.7 million in the quarter with operating margin rising an impressive 822 basis points to 13.5%.
The licensing segment delivered a growth of 20.4% to $26.5 million. Operating profit climbed 27% to $23.7 million and operating margin expanded 455 basis points to 89.2%.
Financial Position
As of July 31, 2010, Guess had cash and cash equivalents of $478.6 million, down from $517.7 million as of May 1, 2010. During the quarter, the company’s cash flows from operations were $56.1 million compared with $79 million in the year-ago quarter.
Store Update
Guess ended the quarter with a total store count of 1,292, of which 448 were located in the United States and Canada, 441 in Europe and Middle East, and 347 in Asia.
Outlook
For the third quarter of fiscal 2011, Guess expects net revenue to range within $565 million to $580 million, and operating margin of approximately 13.5%. This culminates into an EPS range of 55 cents to 58 cents.
For fiscal 2011, Guess maintained its revenue guidance in the range of $2.35 billion to $2.40 billion. Operating margin is expected to be about 16.0%, down from its previous projection of 16%. Earnings per share guidance range was also maintained at $2.80 to $2.85.
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Total revenue increased 10.5% year over year to create another record of $577.1 million, surpassing the Zacks Consensus Estimate of $575 million. The revenue, however, surpassed the company’s guided range of $560 to $575 million. Revenue growth was positive across all segments, particularly led by the Asia segment, which posted 43% growth followed by a 33% increase in the North American wholesale segment.
Cost & Margin Performance
Expenses increased in the quarter with cost of product sales climbing 11.8% to $324.9 million, and selling, general and administrative expenses hiking 10.9% to $155.9 million. Based on revenue, cost of products sold increased 70 basis points to 56.3% and selling general and administrative expenses upped 9 basis points to 27%.
Gross profit spiked 9% to $252.2 million but gross margin dipped 70 basis points to 43.7%. Operating income edged up 5.7% to $96.3 million. Operating margin of 16.7% suffered a contraction of 70 basis points due to the impact of lower North American product margins and higher occupancy costs, given the company's global retail expansion.
Segment Performance
The North American retail segment revenues increased 6.3% to $241.8 million. Comparable store sales rose 1.7% in local currency and 3.5% in U.S. dollars in the quarter compared with the year-ago period. The segment’s operating profit, however, dropped 13% to $26.3 million, with operating margin contracting 240 basis points to 10.9%.
The North American wholesale segment’s revenues climbed 33.3% year over year to $44.3 million, and its operating profit jumped 29% to $10.7 million. The segment’s margin of 24.2% suffered an 88 basis-point decline.
Europe segment’s revenues went up 5.8% to $222.3 million driven by the company’s international expansion initiatives. The segment’s operating income dipped 4% to $50.3 million, and its operating margin fell 230 basis points to 22.6%.
The Asia segment’s revenues surged 42.8% to $42 million in the quarter as the company’s expansion efforts paid off. The segment’s operating profit increased a whopping 265% to $5.7 million in the quarter with operating margin rising an impressive 822 basis points to 13.5%.
The licensing segment delivered a growth of 20.4% to $26.5 million. Operating profit climbed 27% to $23.7 million and operating margin expanded 455 basis points to 89.2%.
Financial Position
As of July 31, 2010, Guess had cash and cash equivalents of $478.6 million, down from $517.7 million as of May 1, 2010. During the quarter, the company’s cash flows from operations were $56.1 million compared with $79 million in the year-ago quarter.
Store Update
Guess ended the quarter with a total store count of 1,292, of which 448 were located in the United States and Canada, 441 in Europe and Middle East, and 347 in Asia.
Outlook
For the third quarter of fiscal 2011, Guess expects net revenue to range within $565 million to $580 million, and operating margin of approximately 13.5%. This culminates into an EPS range of 55 cents to 58 cents.
For fiscal 2011, Guess maintained its revenue guidance in the range of $2.35 billion to $2.40 billion. Operating margin is expected to be about 16.0%, down from its previous projection of 16%. Earnings per share guidance range was also maintained at $2.80 to $2.85.
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