The fourth quarter report and outlook from apparel and accessories retailer Guess? (GES 12.23) was cut from the same mold in many respects as its disappointing third quarter report and outlook. Not surprisingly, the reaction from the retailer's investors has been pretty much the same. Shares of GES traded 12% lower in Wednesday's after-hours action.
Guess? operates retail operations in the Americas, Europe, and Asia, and it also has wholesale operations in the Americas and a licensing business. The main problem for the company is its Americas Retail business -- and it's a big problem considering that segment accounted for 43% of fourth quarter net revenue.
Briefly, Guess's total net revenue for the quarter increased 3.2% to $679.3 million. Americas Retail revenues, though, decreased 6.4% to $288.9 million on a 7.0% decrease in retail comp sales including e-commerce. The adjusted operating margin for the Americas Retail segment dropped 630 basis points due to more markdowns and the negative comp sales that had a negative impact on the fixed cost structure.
Things were better in Europe. Revenues there increased 11.4% in U.S. dollars to $255.8 million while higher gross margins contributed to a 90 basis points increase in segment operating margins of 16.0%.
The Asia business enjoyed a 27% increase in revenue in U.S. dollars, yet the Asia business at 12% of total revenues is still a small portion of Guess's overall business. The Americas Wholesale business saw revenues increase 1% to $33.7 million while the Licensing business suffered a 9% decline in revenues to $22.8 million.
Guess? management said it aims to keep building on the good momentum it is enjoying in Europe and Asia, but it characterized the Americas Retail business as remaining challenging and said it is focused there on profitability improvements. The latter will include measures such as negotiating rent reductions when possible, closing stores, and implementing supply chain initiatives.
Notwithstanding those efforts, Guess? is forecasting a diluted net loss per share for the first quarter of ($0.33) to ($0.30). That view is predicated on consolidated net revenues ranging between a decline of 0.5% and an increase of 1.5% in U.S. dollars, an operating margin between minus 7.0% and minus 6.0%, and comparable sales for the Americas Retail segment declining high-teens to mid-teens.
For fiscal 2018, Guess? is projecting diluted earnings per share to be between $0.28 and $0.40, with consolidated net revenues increasing between 2.0% and 4.0% in U.S. dollars, operating margins between 2.2% and 3.0%, and Americas Retail comparable sales declining low double digits to high single digits.
The earnings guidance for the first quarter and fiscal 2018 is below analysts' average expectations and the ongoing struggles of the Americas Retail business in particular is clearly below investors' expectations.
At Wednesday's close, shares of GES were up 1.1% for the year, yet that belies an otherwise dismal performance over the last 52 weeks in which they have dropped 42.6%. Strikingly, GES shares traded north of $50 in 2011. Where the stock bottoms is still anyone's guess.