Guess Inc. had trouble getting U.S. shoppers to buy denim and dresses in the first quarter, CEO Carlos E. Alberini told Wall Street analysts Wednesday after the fashion company reported falling sales and revenue.
In a Nutshell: In a statement, co-founder and chief creative officer Paul Marciano said the Los Angeles company “has been relentlessly focused on our brand elevation strategy” aimed at recharging products as well as the customer experience to drive profitable growth.
But that strategy won’t mean much when ordinary people are worried about making ends meet.
“As we look around the world at our operating environment today, most markets are impacted to different degrees by lower consumer confidence, high consumer debt and interest rates, increasing costs and higher inventory levels across the industry,” Alberini told analysts during a conference call. Guess is responding to this climate by “managing inventories tightly and controlling costs aggressively,” he added.
The company is creating more casual products and raising opening prices to stimulate sales. “We are also strengthening the assortment of our seasonal precollection offerings, so our wholesale customers can order product earlier and optimize time on floor for each product,” he said, adding that Guess is also “concentrating our open-to-buys among tighter assortments.”
The shrinking wholesale business is still “very profitable,” according to the CEO, though several accounts have been “very, very careful” with their buys and even canceled orders. “That is something that is very difficult to navigate through once we own the inventory, just to see a cancellation at wholesale is very painful,” Alberini said. He went on to say that the Southern California firm is “ordering tightly” and “trying to pick our battles” when it comes the inventory it thinks will sell.
The company plans to boost full-price selling while minimizing promotional activities by “pricing every product based on its customers’ perceived value,” the CEO said.
Guess plans to end the fiscal year with 10 percent less inventory versus a year ago. It no longer needs up to six weeks of supply to mitigate supply chain disruptions, Alberini said.
Automating processes is helping Guess control costs. The company is looking for additional savings from inbound freight and store operations this year.
Americas Retail saw slower customer traffic and conversion in the quarter, leading Guess to taking a “cautious view” of the business this year, Alberini said. The company expects a decline in Americas Wholesale revenues because of comparisons to last year’s shipment arrivals.
South Korea and a Greater China region emerging from Covid fueled a rise in sales in Asia, where shoppers flocked to footwear, accessories, and women’s and kids products.
Chillier weather in the Americas drove consumers to sweaters and outerwear. “We’re challenged with dresses, including Marciano, shorts, denim and knit tops,” Alberini said.
Europe did well, with handbags, small leather goods, men’s bags and jewelry selling strongly. “Women’s, men’s and kids all posted strong sales growth with the best product categories being outerwear, dresses, including a stellar performance in Marciano, woven shirts, activewear and pants,” Alberini said.
Guess is bringing some licensed businesses in-house in this year, including dress and outerwear development and distribution currently handled by G-III through December. The CEO believes Guess can run this $50 million wholesale business better and with healthier profits.
New CFO Markus Neubrand will start Aug.1 and replace interim finance chief Dennis Secor, who will stay on as executive vice president through March 31, 2024.
Net Sales: Net revenue fell 4 percent to $569.8 million from $593.5 million, including a 3.7 percent decline in net sales to $545.9 million from $567.1 million. The balance of revenues included a 9.5 percent decline in licensing income to $23.9 million from $26.4 million.
Revenue for Americas Retail fell 13.8 percent to $143.5 million, while retail comp sales including e-commerce fell 12 percent. For Americas Wholesale, revenue dropped 24.8 percent to $51.4 million. Revenue for Asia jumped 25.9 percent to $70.8 million, while retail comps were up 1 percent. For Europe, revenue was up just 1.5 percent to $280.2 million, while retail comps rose 10 percent.
Earnings: The company lost $11.8 million in the quarter, or 22 cents a diluted share, from net income of $8 million, or 12 cents, a year ago. The adjusted net loss was $3.5 million, or 7 cents a share.
Wall Street was looking for an adjusted diluted loss per share of 28 cents on revenue of $555.6 million.
The company guided second-quarter net revenues at flat to down 1.5 percent on diluted earnings per share (EPS) between 30 cents to 36 cents.
Guess sees net revenue rising 2 to 4 percent on diluted EPS estimates of $2.01 to $2.25 for the full fiscal year.
CEO’s Take: “Throughout the history of the company, our team has embraced change head on, and our team today has adapted to a new world of shopping, a new way of working and how we prioritize and live our lives,” Alberini said.