Revenue dropped 5% to $609 million. Adjusted EPS got sliced in half from $0.52 to $0.26. Analysts had been expecting a year-over-year sales drop but to only $618 million and a year-over-year earnings drop but only to EPS of $0.29 per share. As if that miss and decline weren't bad enough then the guidance was just downright awful.
Guess? guided for sales next quarter of between $590 million and $600 million compared to expectations of $613 million. That part wasn't too bad in light of Wednesday's results, however, the earnings per share guidance is what really bad. Guess? guided for EPS of between $0.15 and $0.20 compared to the analyst estimate of $0.37. Ouch. That's an enormous miss.
What's going on? According to CEO Paul Marciano it was due to the soft environment in North America that is putting brick-and-mortar retailers under pressure. He pointed out that the company's e-commerce sales were up 50% as evidence of this excuse being valid. "Promotional" pressure is cutting into margins hence the much more drastic earnings miss in outlook than the sales miss.
While I have no doubt the retail environment could be better for Guess?, I have trouble believing the environment is the only problem. In the conference call, for example, Guess? said the back-to-school season was "much weaker than we expected."
I have a hard time believing parents quit buying clothes for their growing children to wear. Sure, there will be some hand-me-downs and other cost cutting compared to maybe 10 years ago, but on a year-over-year basis? It's a hard pill to swallow to tell me budgets for school clothes have drastically changed over the last year. If owned Guess? right now I would be selling aggressively.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.