) third quarter 2012 adjusted earnings per share (
) lagged behind the Zacks Consensus Estimate by 2 cents and stood
at 71 cents. It also missed the year-ago earnings of 75 cents a
share by 5.3%.
Management held the current global economic headwinds and the
dilapidating disposable income of the consumers responsible for the
not-so-good results of the company in the third 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 of a better
performance going forward. Management also feels new strategic
initiatives like promoting its brands in North America will show
its colors in the coming quarter. Additionally, management derives
confidence from unexplored markets in Europe and momentum in
Based on the results posted in the quarter, the company
estimates the fourth quarter diluted earnings per share to be in
the range of $1.03 to $1.09. For the fiscal 2012, the company
projects earnings in the range of $3.04 to $3.10 a share and GAAP
diluted earnings per share between $2.85 and $2.91.
Revenues and Margins
Revenues in the quarter climbed up 4.7% year over year to $642.8
million. In constant dollar terms, net revenue increased 1.9% from
the previous year.
Retail stores in North American segment generated revenue of
$265.6 million, up 4.7% from the year-ago period. As of third
quarter 2012, Guess? directly operated 495 retail stores in the
United States and Canada, versus 473 stores that it operated a year
earlier. However, comparable store sales came down 4.1% from the
previous year, mainly on account of the challenging macro-economic
conditions and diminishing real income of consumers.
Revenues grew in both Europe and Asia, and the Asian markets led
the race charge with 31.1% increase in revenue. 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 third quarter of fiscal 2012, from $44.3 million in
the prior-year period.
Operating income grew 4.6% to $97.0 million, reflecting
favorable currency translation effect.
Operating income margin remained flat at 15.1% compared with the
prior-year quarter. Product margin climbed up owing to lower
markdown in North American Retail.
As on October 29, 2011, Guess? had $426.72 million of cash and
cash equivalents compared with $427.03 million in the prior-year
quarter. Long-term liabilities amounted to $174.5 million with
stockholder's equity of $1,861.20 million in the quarter.
Operating activities provided $149.94 million of cash, of which
$103.77 million was used in investing activities.
We are encouraged by the company's focus on cost-control
efforts, balance sheet management, and growth opportunities and
However, commodity-price inflation, global recession and
competition in the highly fragmented apparel industry coupled with
stiff competition from rivals like
Abercrombie & Fitch Co.
) 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
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