Guess? Beats; Profits Overseas - Analyst Blog
August 25 2011 - 7:30AM
Zacks
Guess? Inc.’s
(GES) second quarter 2012 adjusted EPS
surpassed the Zacks estimate by 3 pennies and stood at 84 cents. It
also exceeded the year-ago estimate of 72 cents by 16.7%. Reported
EPS came down year over year by 9.72% to 65 cents from 72 cents in
the previous year.
Management credited the booming
international business with consistent ly good performance in
Europe and Asia for strong results in the quarter.
The Way
Forward
Guess? inspires confidence owing to
the continuing strong business momentum in the challenging
environment of weak consumer and category growth as well as
significant input cost inflation. Management also feels that with
strong cash position and solid capital structure, the company would
easily carry out its long-term strategies and meet its vision,
focusing on measured growth.
Based on the results posted in the
quarter, the company estimates the third quarter diluted earnings
to be in the range of 71 cents to 74 cents. For the fiscal 2012 the
company sets an outlook of earnings in the range of $3.25 to $3.35
and GAAP diluted earnings per share between $3.06 and $3.16.
Revenues and
Margins
Revenues in the quarter soared
17.3% year over year to $677.2 million. In constant dollar terms
net revenue went up 9.5% from the previous year.
Retail stores in North American
segment generated revenue of $261.1 million, up 8% from the year
ago period. As of the second quarter 2012, Guess? directly operated
490 retail stores in the United States and Canada versus 448 stores
a year earlier. However, comparable store sales came down 1.9% from
the previous year mainly on account of the challenging
macroeconomic conditions and diminishing real income of
consumers.
Revenues grew in both Europe and
Asia with the Asian markets leading the charge with an increase in
revenue of 31.1%. It was followed by an increase of 29.9% in the
European markets. However, North American Wholesale segment posted
a decline of 0.9% to $43.9 million in the second quarter of fiscal
2012, from $44.3 million in the prior-year period.
Operating income grew 17.3% to
$113.0 million reflecting favorable currency, volume/mix gains and
lower overheads.
Operating Income margin remained
flat at 16.7% from the prior year quarter, product margin climbed
up owing to higher relative occupancy, distribution and selling
expenses.
As on July 30, 2011, Guess? had
$430.23 million of cash and cash equivalents compared with $427.03
million in the prior year quarter. Long-term liabilities amounted
to $169.8 million with stockholder’s equity of $1,171.14 million in
the quarter.
Operating activities provided
$88.33 million of cash of which $62.15 million was used in
investing activities.
New Credit
Facility
On July 2011, Guess? managed a
five-year $200 million secured revolving credit facility from a
global and strategic syndicate of banks led jointly by J.P.
Morgan Securities LLC (JPM)and Bank of
America Merrill Lynch (BAC). This credit will be used as a
platform to access over $1 billion of potential capital to pursue
the company’s global expansion efforts and explore other
opportunities.
Conclusion
We are encouraged by the company's
focus on cost-control efforts, balance sheet management, and growth
opportunities and global expansion.
However, commodity-price inflation,
global recession and competition in the highly fragmented apparel
industry coupled with stiff competition from rivals like
Abercrombie & Fitch Co. (ANF) and Gap
Inc. (GAP) are matters of concern.
Currently, Guess? holds a Zacks #3
Rank. On a long-term basis, we maintain a ‘Neutral’ rating on the
stock with a short-term ‘Hold’ rating.
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GUESS INC (GES): Free Stock Analysis Report
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