Guess? Lags on Q2 Earnings, Cuts FY25 View on Consumer Slowdown

Guess? Inc. GES posted mixed second-quarter fiscal 2025 results, with the top line increasing year over year. The bottom line declined from the year-ago quarter's reported figure and missed the consensus mark.

The company is lowering its fiscal 2025 revenue and earnings outlook to reflect the current weaker consumer environment. That said, it is effectively managing its costs and inventories while still supporting business growth through investments in marketing, new stores and infrastructure. The acquisition of rag & bone is likely to have contributed to the positive performance.

GES's Quarterly Performance: Key Metrics & Insights

GES reported adjusted earnings of 42 cents per share that missed the Zacks Consensus Estimate of 44 cents. However, the bottom line declined 42% from earnings of 72 cents in the year-ago quarter. The company's bottom-line performance reflects its decision to substantially boost marketing investments compared with last year's levels. This increased spending was aimed at supporting the international expansion of its brands, including the core Guess brand and the new additions to the portfolio, such as Guess Jeans and rag & bone.

Net revenues amounted to $732.6 million, up 10% year over year. On a constant-currency (cc) basis, net revenues rose 13%. The strong performance was driven by the Rag & Bone acquisition and robust wholesale results in Europe and Americas regions. All segments, except Asia, registered top-line growth. The consensus mark for quarterly revenues was pegged at $732 million.

Adjusted earnings from operations were $37.9 million, down 41.6% from $65 million reported in the year-ago quarter. The adjusted operating margin came in at 5.2%, down from 9.8% reported in the same quarter last year. The downtick was mainly caused by increased expenses, the impact of newly-acquired businesses and higher promotions. However, it was partially offset by initial markups and the positive impact of higher revenues.

Guess? Provides Q2 Revenue & Margin Insights by Segment

Revenues in the Americas Retail segment rose 8% in U.S. dollars and 9% at constant currency or cc. However, retail comparable sales, including e-commerce, declined 10% in both U.S. dollars and at cc. The segment's operating margin fell 7.6% to 1.5% in the quarter.

Americas Wholesale revenues soared 93% on a reported basis and 94% at cc. The segment's operating margin declined 6.4% to 18.9% due to the impact of newly-acquired businesses.

The Europe segment's revenues increased 5% and 8% on a reported basis and at cc, respectively. Retail comp sales (including e-commerce) moved up 1% on a reported basis and 4% at cc. The segmental operating margin was 9.8%, down 3.1% year over year.

Asia revenues declined 8% on a reported basis and 4% at cc. Retail comp sales (including e-commerce) fell 14% and 10% on a reported basis and at cc, respectively. The operating margin in the segment stood at negative 2.3%, down 1.4% year over year. The downside was primarily due to lower revenues and increased expenses.

Image Source: Zacks Investment Research

Licensing revenues rose 4% on a reported basis and at cc. Segmental operating margin was 93.3% compared with 94.1% in the year-ago quarter. The reduction in the operating margin was primarily due to increased expenses.

GES's Financial Health Snapshot & Shareholder Friendly Move

The Zacks Rank #3 (Hold) company exited the quarter with cash and cash equivalents of $218.9 million and long-term debt and finance lease obligations of nearly $187.8 million. Stockholders' equity was around $491.2 million.

Net cash from operating activities for the six months ended Aug. 3, 2024, was $21.7 million. Free cash flow for the same period amounted to negative almost $23 million. For the fiscal 2025, free cash flow is envisioned to be $100 million.

GES announced a quarterly dividend of 30 cents per share on the company's common stock, payable on Sep. 27, 2024, to shareholders on record as of Sep. 11.

In the fiscal second quarter, management repurchased nearly 2.3 million shares for $50 million. Following this transaction, the company had a remaining capacity of $139.8 million in its share repurchase program.

What to Expect From GES in the Future?

For the fiscal 2025, Guess? projects revenue growth to be between 9.5% and 11%, down from the previous range of 10.7-12.7%.

The adjusted operating margin is expected to be between 7.3% and 7.8%, revised from the earlier forecast of 7.7% to 8.5% for the fiscal 2025. The GAAP operating margin is anticipated to range from 7.2-7.7% compared with the previous estimate of 7.3-8.1%.

Management forecasts fiscal 2025 adjusted earnings per share to be between $2.42 and $2.70, down from the earlier range of $2.62 to $3.00 and compared with $3.14 reported in the fiscal 2024. On a GAAP basis, EPS are expected to fall between $1.92 and $2.14 compared with the previous projection of $2.59 to $2.89 and $3.09 in the fiscal 2024.

For third-quarter fiscal 2025, management expects revenue growth in the 14.5-16.5% band. Adjusted operating margin is likely to be between 4.7% and 5.8%. On an adjusted basis, EPS are forecast in the range of 33-45 cents. On a GAAP basis, EPS are anticipated in the range of 28-38 cents.

Shares of this Zacks Rank #3 (Hold) company have declined 13.5% in the past three months compared with the industry's 2.8% decline.

3 Promising Stocks

A few better-ranked stocks are Wolverine World Wide WWW, Kontoor Brands Inc. KTB and Steven Madden, Ltd. SHOO.

Wolverine World Wide designs, manufactures and distributes of a wide variety of casual and active apparel and footwear. WWW sports a Zacks Rank #1 (Strong Buy) at present.

The Zacks Consensus Estimate for WWW's current financial-year sales indicates a decline of almost 23% from the year-ago reported figures.

Kontoor Brands is an apparel company. The stock currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for KTB's 2024 earnings and sales indicates growth of 12.7% and 0.1%, respectively, from the 2023 reported figures. KTB has a trailing four-quarter average earnings surprise of 12.3%.

Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank of 2.

The Zacks Consensus Estimate for Steven Madden's 2024 earnings and sales indicates growth of 6.9% and 12.6%, respectively, from the year-ago reported actuals. SHOO has a trailing four-quarter average earnings surprise of 9.5%.

To read this article on Zacks.com click here.