The stock of apparel retailer Guess? (GES 15.90, -2.04, -11.4%) has had a tremendous year so far, soaring 48.4% as of Tuesday's close and realizing the entirety of that gain over the last six months. Shares of GES, however, are indicated 11% lower following the company's fiscal third quarter earnings report.
On the face of things, Guess? delivered some decent results. Net revenue increased 3.3% to $554.1 million and adjusted diluted earnings per share jumped 9.1% to $0.12, in-line with analysts' average expectation.
The problem for Guess? is that its business in the Americas region, which accounts for 34% of total net revenue, continues to struggle. Net revenue for the region declined 13% to $187.0 million, offsetting a good bit of the strength seen in Europe and Asia where net revenues increased 19% and 17%, respectively.
Granted the Americas division managed to increase its operating margin by 240 basis points in the third quarter, but despite the improvement, the operating margin was still negative 2.5%. Retail comp sales including e-commerce decreased 10% in U.S. dollars.
Fortunately, Guess? is showing some good momentum in Europe and Asia. Retail comp sales including e-commerce were up 10% in Europe and up 3% in Asia in U.S. dollars.
The Americas Wholesale business was on the soft side of things. Net revenues decreased 2.5% to $45.6 million, yet operating margins for the unit increased 70 basis points to 18.1%. Licensing revenue rose 9.1% to $25.9 million and the operating margin rate surged 620 basis points to 90.8%.
Guess? said it is sees a lot of opportunity still for Europe and Asia and that it expects profitability in the Americas to continue to benefit from cost reduction and margin improvement initiatives. The company added that it remains committed to its long-term goal of 7.5% operating margin.
Looking at the important fourth quarter, which encompasses the holiday selling season, Guess? is forecasting consolidated net revenues to increase between 10.0% and 12.0% in U.S. dollars, its GAAP operating margin to be between 8.0% and 9.0%, and its adjusted diluted earnings to range from $0.48 to $0.55 per share.
The midpoint of the EPS guidance is in-line with analysts' average expectation.
With the run GES shares have had, there was little room for shortcomings in its earnings report and outlook. Neither was particularly bad in aggregate, but with the continued weakness in the Americas, the sum of the parts still isn't adding up as nicely as many investors would like to see; hence, the initial move after the report has been to take some of the lofty profits registered by the stock this year.