Guess?, Inc. (GES - Free Report) posted fourth-quarter and fiscal 2018 results, with the top and bottom lines surpassing the Zacks Consensus Estimates, and improving year on year. Results were driven by strong revenue growth, especially in the European and Asian regions. Further, the company provided an encouraging outlook for fiscal 2019.

The strong performance, combined with sturdy plans for future growth, raised investors’ optimism on the stock, that depicted 12.2% growth during the after-hours trading session on Mar 21. Moreover, this Zacks Rank #1 (Strong Buy) stock has surged 45.6% in the past year compared with the industry’s rally of 25.8%.

Quarter in Detail

Adjusted earnings were 62 cents per share, surpassing the consensus mark of 53 cents and improving 44.2% from the year-ago quarter’s level. Notably, this marked the company’s fourth consecutive earnings beat. During the quarter, currency had a positive impact of 4 cents on earnings. Further, increase in revenues fueled the company’s overall performance.

Guess?, Inc. Price, Consensus and EPS Surprise

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Net revenues amounted to $792.2 million, up 17.5% year over year. This marks the sixth straight quarter of revenue improvement. On a constant-currency basis, revenues grew 10.2%. The upside can be attributed to solid sales in the Europe, Asia and Americas Wholesale segments. These were partly offset by soft revenues in the Americas Retail. Notably, the top line came ahead of the Zacks Consensus Estimate of $751 million.

Gross profit improved 24% to $295.1 million on the back of higher revenues. The company’s gross margin also expanded 210 basis points (bps) to 37.2%, owing to lower markdowns and rents, and increased IMU’s. These upsides were partially offset by occupancy deleverage stemming from increased European logistics costs.

Adjusted operating profit for the quarter was $70.7 million, up 31.2% from the prior-year quarter. Operating profit during the quarter gained from improved revenues and gross profit, partially countered by increased selling, general and administrative (SG&A) expenses led by resetting of performance-based compensation. Also, adjusted operating margin rose 90 bps to 8.9% gaining from overall expense leverage, offset to a certain extent by increased performance-based compensation.

Segment Performance

Revenues of $271.2 million in the Americas Retail segment fell 6.1% (down 7.2% on a constant-currency basis) year over year primarily due to lower traffic. Further, Retail comp sales, including e-commerce, declined 4% (down 5% on a constant-currency basis). However, operating margin in the segment improved 620 bps, driven by the positive impacts of higher initial markups, lower markdowns, rent reductions and store closures. These were partially countered by negative comps.

Net revenues of $36.2 million in the American Wholesale segment increased 3.8% (up 9% on a constant-currency basis). However, operating margin in the segment shrunk 290 bps to 14.2%, due to lower gross margins and expense deleverage.

The Europe segment's revenues of $356.8 million rose 39.7% (up 24.1% on a constant-currency basis). Store openings and comps growth boosted the region’s performance. Retail comp sales, including e-commerce, improved 18% (up 6% on a constant-currency basis). Operating margin declined 10 bps to reach 15.9%, thanks to higher distribution costs from the repositioning of the European distribution center. This was partially compensated by higher initial markups and expense deleverage.

Revenues of $108.5 million from Asia increased 40.2% (up 33.1% on a constant-currency basis) on the back of improving comps. Retail comp sales, including e-commerce, grew 14% (up 8% on a constant-currency basis). Operating margin in the segment surged 470 bps to 8.4% on overall expense leverage.

Net revenues of $19.5 million at the Licensing segment increased 11.4% in U.S. dollars and constant currency. Operating margin in the segment was 87.7% declining considerably from 114.6% in the year period.

Fiscal 2018 results

Adjusted earnings in fiscal 2018 were 70 cents per share, surpassing the consensus mark of 62 cents and improving 52.2% from the year-ago period.

Net revenues were $2,363.8 million, up 7.9% from the prior year. On a constant-currency basis, revenues grew 5.3%. The upside came on the back of solid sales in the Americas Wholesale, Europe and Asia segments, which were driven by store openings, positive comps and wholesale growth. These were partly offset by soft revenues in the Americas Retail. Moreover, revenues also surpassed the Zacks Consensus Estimate of $2,337 million in fiscal 2018.

Gross profit increased 11.2% to $828.9 million on the back of higher revenues. The company’s gross margin also expanded 110 basis points (bps) to 35.1%.

Adjusted operating profit for the year was $85 million, rising 36.1% from the year-ago figure. Also, adjusted operating margin rose 70 bps to 3.6% gaining from overall expense leverage and higher initial European markups. These were offset to a certain extend by increased performance-based compensation and negative comps in Americas.

Other Updates

Guess? exited the fourth quarter with cash and cash equivalents of $367.4 million and long-term debt and capital lease obligations of $39.1 million. Further, the stockholders’ equity was $916.8 million.

During the fourth quarter, the company’s board approved a quarterly cash dividend of 22.5 cents per share payable on April 20, 2018, to shareholders of record as of April 4, 2018. The company also repurchased slightly below 2 million shares worth $31 million during the quarter.

Further, capital expenditure for fiscal 2019 is expected in the band of $85-$95 million, owing to consistent investment in retail improvement in European and Asian regions as well as in technology infrastructure to aid long-term growth.

As on February 3, the company’s total store count was 1,683 while directly-operated stores were 1,011.

Guidance

Guess? is on track with exploring opportunities for growth in the European and Asia regions. Guess? continues to make capital investments in these regions to improve sales and margins. Additionally, the company has been striving to improve performance in the Americas and has undertaken several initiatives to reduce costs and enhance margins. 

That said, for fiscal 2019, management expects consolidated net revenue growth in the range of 7-8%. On a constant-currency basis, consolidated net revenues are expected to grow 5-6%. Earnings per share for fiscal 2019 are estimated in the range of 86-98 cents. Currency is likely to have a negative impact of 15 cents upon earnings.

Additionally, for the first quarter of fiscal 2019, management expects consolidated net revenues to improve in the range of 11-12.5%. On a constant-currency basis, consolidated net revenues are projected to grow 5.5-7%. The company anticipates loss for the quarter in the range of 27-24 cents. Currency is not likely to impact earnings during the quarter. The Zacks Consensus Estimate for the first quarter is currently pegged at a loss of 15 cents.

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