Europe Debt Deters Guess?' 4Q - Analyst Blog
March 15 2012 - 5:15AM
Zacks
Guess? Inc.’s
(GES) fourth quarter 2012 adjusted earnings per share (EPS) of
$1.05 came in line with the Zacks Consensus Estimate and missed the
year-ago EPS of $1.11 by 5.4%. Fiscal year 2012 earnings went down
1.9% year over year to $3.05 per share compared with$3.11 per share
in the prior year. Fiscal earnings missed the Zacks Consensus
estimate by a penny
A slight improvement of conditions
in North America was offset by lower spending in Europe, as the
region adhered to the austerity measures undertaken by the
government to combat the debt crisis. Moreover, the lingering debt
crisis affected the company’s profit during the fourth quarter.
The Way
Forward
The company’s continuing strong
business momentum, even in face of the challenging weak consumer
and category growth environment and inflating input cost, boosts
the confidence to perform better going forward. Management also
feels new strategic initiatives like promoting its brands in North
America will reap benefits in the coming quarter. Additionally,
management derives confidence from unexplored markets in Europe and
momentum in Asia. To bolster its presence in the emerging markets,
the company plans to develop a joint ventures in Brazil, and expand
its presence in India in 2013.
The company expects the first
quarter 2013 earnings to be in the range of 25 cents to 28 cents.
The outlook includes benefit of about 3 cents to 4 cents from
inclusion of the53rd week and the impact of last year's share
repurchase. For the fiscal year 2013,the company expects EPS to be
in the range of $2.50 to $2.65. The company expects rate of
earnings decline to gradually lessen throughout the year and
forecasts the fourth quarter of the coming year to post first
earnings growth.
In North America retail, the
company plans to focus on better product, lean inventory, tight
markdown management, and increased full price selling, thus
improving profitability while maintaining quality. In Europe, the
company plans to develop in a balanced way across geographies,
while in Asia, it plans continued expansion with productivity
improvements.
Revenues and
Margins
Revenues in the quarter climbed up
2.5% to $775.8 million from $756.9 million in the prior-year
quarter. Revenues for fiscal 2012 went up 8.1% to $2.69 billion
from $2.49 billion in the prior year.
Retail stores in North American
segment generated 1.4% higher revenue of $343.5 million in the
fourth quarter compared with $338.6 million in the same period last
year. Comparable store sales shrank 5.0% from last year.
Asian markets reported 27.5%
increase in revenues, while European markets reported a drop of
1.4% in revenues. However, North American Wholesale segment posted
a year-over-year increase of 7.5%, while licensing segment net
revenue in the fourth quarter was flat year over year.
Operating income grew 5.9% to
$135.8 million, reflecting unfavorable currency translation
impact.
Operating income margin shrank 160
basis points to 17.5%, year over year, as improved product margins
were more than offset by higher occupancy and Selling General &
Administrative rates.
As on January 29, 2012, Guess? had
$491.80 million of cash and cash equivalents compared with $427.03
million in the prior-year quarter.
Operating activities provided
$364.5 million of cash, of which $132.1 million was used in
investing activities.
Conclusion
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 #4
Rank, implying a short-term Sell rating. On a long-term basis, we
maintain an ‘Underperform’ rating on the stock.
ABERCROMBIE (ANF): Free Stock Analysis Report
GUESS INC (GES): Free Stock Analysis Report
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