Guess Inc (NYSE: GES) has been on a disappointing run as of late and the company has been suffering from falling revenues as well as earnings. Investors have shown a marked decrease in their confidence in the company and as a result, share prices have been on a downward trend over the course of the last 5 years. The company's product line has been suffering from obsolescence while the company incurs huge promotional costs as a result of which its financial performance has been suffering for the better part of the last 5 years. The company's share prices fell to a 5-year low, falling below the $20 mark. The company's investors had started to lose confidence in the company as a result of its failure to cope with changing demand patterns in the North American market. The company's shares are currently trading near 5-year low levels at $20.36 and are expected to fall further.
Overview of Guess Inc.'s last reported Financial Performance
The apparel retailer reported its earnings for the third quarter of its fiscal year 2015 earlier this month. Guess Inc begins its fiscal year in February. During the quarter, Guess Inc generated revenues of $590 million, revenues fell 4% as compared to the same quarter of the previous year. Gross profit for the quarter amounted to $214 million as compared to $228 million in the year ago quarter, showing a decrease of 6%. Moving further down the tiers of Guess Inc's financial performance, the company reported operating incomes of $25 million during the quarter. Operating incomes showed a decrease of almost 50% as compared to $48 million in the year ago quarter. The company's operating expenses had shown a marked increase as compared to the previous year's third quarter and as a result the pressure on the company's margins had increased greatly. Net income for Guess, during the quarter, amounted to $21 million, down 38% from $34 million in the same quarter of the previous year. Guess reported diluted earnings per share of $0.24 as compared to $0.40 per share in the year ago quarter. Guess continued to reward its investors by rewarding them with dividends of $0.23 per share, dividends were up 15% as compared to $0.20 in the year ago quarter. The company has a strong dividend payout tradition and has had to maintain it owing to falling investor confidence as a result of its disappointing financial performances. The company's liquidity position also worsened significantly over the quarter with net cash outflows of up to $5 million from its operations. The third quarter of 2015 thus proved to be one of great disappointment for the clothing retailer. The only bright spot for the company, in what was otherwise a gloomy performance, was the company's online sales. Online sales make up a very small proportion of the company's revenues thus it had no significant impact on the overall performance of the company.
Other Developments and Future Outlook for Guess Inc.
Guess has failed to adapt to the changing demand patterns in the clothing retail industry. The company failed to keep its product line up to date with the latest trends, thus suffering from obsolescence. Moreover, during the quarter, there was a huge amount of promotional activities which failed to bring about the desired increase in revenues and took their toll heavily on operating expenses during the quarter. As a result of this, Guess Inc.'s margins suffered immensely and it seems like a miracle that the company was able to remain profitable. A few more quarters like this one and the company is set to bear losses. The clothing retailer is now busy in restructuring its operations in order to increase efficiency and focus on the more profitable units. The company must also come up with a business plan for incorporating online sales with store sales. The company should focus on online growth and increase its share in the total revenues of the business. However, the company's poor financial showing can not only be attributed to internal factors. The clothing retail industry in general has suffered over the course of the year. Guess Inc's competitors such as Abercrombie and Fitch (NYSE: ANF), Aeropostale Inc. (NYSE: ARO), American Eagle Outfitters (NYSE: AEO) and Urban Outfitters (NASDAQ: URBN) have all reported poor financial showings for last few quarters. The clothing industry might be contracting as a result of the ending of the Federal Reserve's quantitative easing program. Consumption patterns in the industry have changed as a result. Moreover, it is important to note that apparel spending in the economy exhibits a very high correlation with GDP per capita. Thus currently, apparel spending could be contracting in anticipation of the adverse impact on GDP per capita of a rising interest rate environment. Despite expectations of unfavorable market conditions, the apparel industry can find solace in operating margin expansions that might result from a favorable sales mix shift towards online sales. Guess Inc. has adjusted its earnings guidance for the fourth quarter as well as the full fiscal year 2015 downward. The company is now expecting full year earnings of up to $1.15 per share as compared to earlier estimates of $1.20 per share.
Guess Inc has had a torrid year so far with the company suffering as a result of not keeping up to date with the latest trends. The company's promotional activities have also failed to have the desired impact and as a result, it has incurred massive expenses and little increases in revenues to compensate for them. Even though Guess Inc is not the only apparel company reporting disappointing results for the last quarter, it nevertheless seems to be at the losing end since its tradition of disappointing results has been a rather recurring practice. For investors who do intend to remain optimistic about the company; the fact that the external environment seems to be burdensome for almost every retailer indicates that even though there are some internal matters that Guess Inc. is trying to resolve, it is also being challenged by external factors that are beyond its control. That being said, the turnaround of the company could be tougher than expected, and could take longer than planned, but will eventually be something that could help Guess Inc. in the future.
Currently, investors will be better off by avoiding investment in Guess, the company has suffered immensely over the previous year and has adjusted its forward looking estimates further downwards. The company has to revamp its operations in order to make itself more competitive and the process will definitely take time to turn things around for Guess Inc.
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.