Guess Inc. sees great future opportunities for its Rag & Bone business, but its retail arm Guess Americas failed to meet the company’s expectations due to lower consumer spending in the second quarter.
“We are extremely pleased with the business performance and the progress of the company’s integration into our platform,” Guess CEO Carlos Alberini said during a conference call with investors following the release of second-quarter results. He said the brand contributed to solid growth for the company and the results were “driven by a great performance from the wholesale business, which saw strong demand for new products in key categories from several customers.” In contrast, the direct-to-consumer business was “slightly below” the company’s expectations, according to Alberini.
Paul Marciano, co-founder and chief creative officer, said in a statement that the company has already begun adding product categories to the Rag & Bone portfolio and has plans to “accelerate store openings domestically and internationally.”
Alberini said the company is also increasing its marketing investments to support the international expansion of its brands, including new additions to the portfolio, Guess Jeans and Rag & Bone.
Rag & Bone’s investments include new markets across Europe outside the UK where the brand is less well known. Another development in the company’s search for retail locations is the signing of a lease for a store in Amsterdam, Alberini said. “In addition to Europe, we are in discussions with potential partners to represent the Rag & Bone brand in other new markets, including Mexico, Latin America, the Middle East and Australia,” the CEO said, adding that they are working with WHP to explore additional licensing for products and territories. Guess announced in February that it would acquire the New York jeans brand’s operating assets and that the brand’s intellectual property would be placed in a 50-50 joint venture controlled by Guess and WHP Global, the brand management firm led by Yehuda Shmidman. Rag & Bone Chairman Andrew Rosen and his team joined Guess after the deal closed.
In other growth news, Alberini said the wholesale business for his new Guess Jeans brand, led by Nicolai Marciano, was “off to a strong start.” The new lifestyle brand, which targets Gen Z men and women with its casual offering and “compelling pricing,” opened two stores in the quarter, one in Amsterdam and the other in Berlin. According to Alberini, Guess Jeans hosted a weekend event at Coachella that garnered “billions of impressions and millions of views,” adding that Guess Jeans’ first sales campaign delivered orders well beyond the company’s expectations.
The Guess business reported sales growth in all segments except Asia. Guess’ core European wholesale business performed well, and the company was able to drive growth in its Americas wholesale business, which also achieved sales increases in the U.S. and Mexico. While the European retail business reported a positive increase in comparable sales, in-store traffic was lower during the quarter. Customer traffic was also difficult in Guess’ Americas retail business, where comparable sales declined. Sales in the Asian business also declined.
By category, Alberini said footwear and accessories were the leading categories across Europe, with strong momentum in sneakers and handbags. In apparel, men’s and women’s knitwear and women’s jeans posted positive comparatives. In contrast, dresses and outerwear saw a decline in sales. In the Americas, the company saw declines in both men’s and women’s business, although sportswear for both genders remained the top-selling category. Accessories outperformed apparel, while licensing sales increased, mainly due to footwear, which was the top-selling category for the period.
For the second quarter ended August 3, the company reported a net loss of $10.6 million, or 28 cents per diluted share, compared to net income of $39 million, or 59 cents, a year earlier. Net revenue increased 10.2 percent to $732.6 million from $664.5 million. Revenue included a 10.5 percent increase in product sales to $703.5 million and a 3.9 percent increase in licensing revenue to $29.1 million.
On an adjusted basis, earnings per share (EPS) were 42 cents. Analysts had expected diluted earnings per share of 43 cents on sales of almost $730 million.
Net income for the six months was $2.4 million, or 4 cents, down from net income of $27.2 million, or 46 cents, in the same period last year. Net revenue increased 7.3 percent to $1.32 billion from $1.23 billion. This included a 7.1 percent increase in product sales to $1.27 billion and an 11.9 percent increase in licensing revenue to $58.1 million.
“We are clearly operating in a dynamic environment where customers are very selective and more attentive to price and promotions,” Alberini said of consumer attitudes. He also noted that the slower customer flows that first began in the U.S. have now spread to Canada.
Given the weaker consumer environment and taking into account higher costs due to inflation factors, the company forecast third quarter adjusted diluted earnings per share in a range of 33 cents to 45 cents, with consolidated net sales increasing between 14.5 percent and 16.5 percent. For the full fiscal year 2025, adjusted diluted earnings per share was forecast to be between $2.42 and $2.70, with consolidated net sales increasing between 9.5 percent and 11.0 percent. Net sales for the third quarter ended October 28, 2023 were $651.2 million, and for the fiscal year ended February 3, 2024 were $2.78 billion.
