LOS ANGELES , Aug. 27, 2014 /PRNewswire/ --  Guess?, Inc. (NYSE: GES) today reported financial results for its second quarter ended August 2, 2014 .

Second Quarter Fiscal 2015 Highlights

• North American Retail revenues decreased 4%; retail comp sales including e-commerce decreased 5% in U.S. dollars and 4% in constant currency
• European revenues decreased 6% in U.S. dollars and 9% in local currency
• Asian revenues decreased 2% in U.S. dollars and 8% in constant currency
• North American Wholesale revenues decreased 8% in U.S. dollars and 6% in constant currency
• Adjusted operating earnings decreased 55%; GAAP operating earnings decreased 51%

This press release contains certain non-GAAP, or adjusted, financial measures, which exclude the impact of restructuring charges (and related taxes where applicable) recorded during the prior-year first and second quarters. A reconciliation of reported GAAP results to comparable non-GAAP results is provided in the accompanying tables and discussed under the heading "Presentation of Non-GAAP Information" below.

Second Quarter Fiscal 2015 Results

For the second quarter of fiscal 2015, the Company recorded net earnings of $22.0 million , a 50.5% decrease compared to adjusted net earnings of $44.3 million for the second quarter of fiscal 2014. Diluted earnings per share decreased 50.0% to $0.26 , compared to adjusted diluted earnings per share of $0.52 for the prior-year quarter. The prior-year adjusted net earnings excluded restructuring charges of $6.1 million ( $4.4 million net of taxes). On a GAAP basis, prior-year second quarter net earnings were $39.9 million and diluted earnings per share totaled $0.47 , including an unfavorable $0.05 after-tax impact from the restructuring charges.

Paul Marciano , Chief Executive Officer, commented, "Overall second quarter earnings were consistent with our expectations but were short of our operational goals due to a soft environment in North America , where traffic and promotional activity have continued to put our brick and mortar stores under pressure. However, we are encouraged by our North American e-commerce business which grew by almost 50% in the second quarter. So far in the third quarter, our Fall collection in North American Retail has not seen the traction with the consumer that we were expecting and we have adjusted our expectations for the back-half of the year accordingly."

Mr. Marciano continued, "As always, we go back to our roots and to what we can control. We are consolidating our organization in North America , making it more efficient and more focused on our long-term goals. In addition, we are continuing to rationalize our North America store portfolio and also have the flexibility to further optimize our retail footprint in the coming years. Finally, we will continue to protect our most valuable asset, the Guess brand, and will remain focused on delivering great products to our customers."

Total net revenue for the second quarter of fiscal 2015 decreased 4.8% to $608.6 million , from $639.0 million in the prior-year quarter. In constant currency, total net revenue decreased 6.3%.

• The Company's retail stores and e-commerce sites in North America generated revenue of $244.0 million in the second quarter of fiscal 2015, a 4.1% decrease from $254.3 million in the same period a year ago. Comparable store sales including the results of our e-commerce sites for the second quarter of fiscal 2015 decreased 5.4% in U.S. dollars and 4.4% in constant currency compared to the same period a year ago. The Company directly operated 488 retail stores in the United States and Canada at the end of the second quarter of fiscal 2015 versus 507 retail stores a year earlier.
• Net revenue from the Company's Europe segment decreased 6.0% to $235.3 million in the second quarter of fiscal 2015, from $250.4 million in the prior-year period. In local currency, net revenue decreased 9.5%.
• Net revenue from the Company's Asia segment decreased 2.4% to $64.3 million in the second quarter of fiscal 2015, from $65.9 million in the prior-year period. In constant currency, net revenue decreased 8.5%.
• Net revenue from the Company's North American Wholesale segment decreased 7.5% to $38.3 million in the second quarter of fiscal 2015, from $41.4 million in the prior-year period. In constant currency, net revenue decreased 6.2%.
• Licensing segment net revenue decreased 1.2% to $26.8 million in the second quarter of fiscal 2015, from $27.1 million in the prior-year period.

Operating earnings for the second quarter of fiscal 2015 decreased 55.4% to $29.9 million (including a $0.9 million favorable currency translation impact), from adjusted operating earnings of $66.9 million in the prior-year period. Operating margin in the second quarter decreased 560 basis points to 4.9%, compared to adjusted operating margin of 10.5% in the prior-year quarter. The lower operating margin primarily reflects the negative impact on the Company's fixed cost structure from negative same store sales in North America and lower wholesale shipments in Europe and more markdowns in North America and Europe . On a GAAP basis, operating earnings decreased 50.9% and operating margin decreased 460 basis points.

Other net income, which primarily includes net unrealized and realized mark-to-market gains on foreign currency contracts and net unrealized gains on non-operating assets, was $4.8 million for the second quarter of fiscal 2015, compared to other net expense of $0.1 million in the prior-year quarter.

The Company's second quarter fiscal 2015 effective tax rate increased to 34.8%, compared to 33.0% for the second quarter of the prior year.

Six-Month Period Results

Net earnings for the six months ended August 2, 2014 were $19.9 million , a decrease of 64.6% compared to adjusted net earnings of $56.0 million for the six months ended August 3, 2013 . Diluted earnings per share decreased 65.2% to $0.23 , compared to adjusted diluted earnings per share of $0.66 for the prior-year period. The prior-year adjusted net earnings excluded restructuring charges of $8.5 million ( $6.2 million net of taxes). On a GAAP basis, net earnings for the six months ended August 3, 2013 were $49.8 million and diluted earnings per share totaled $0.58 , including an unfavorable $0.08 after-tax impact from the restructuring charges.

Total net revenue for the first six months of fiscal 2015 decreased 4.8% to $1.13 billion , from $1.19 billion in the prior-year period. In constant currency, total net revenue decreased 5.9%.

• The Company's retail stores and e-commerce sites in North America generated revenue of $472.3 million in the first six months of fiscal 2015, a 4.1% decrease from $492.6 million in the same period a year ago. Comparable store sales including the results of our e-commerce sites for the six months ended August 2, 2014 decreased 4.9% in U.S. dollars and 3.6% in constant currency compared to the same period a year ago.
• Net revenue from the Company's Europe segment decreased 5.1% to $394.4 million in the first six months of fiscal 2015, from $415.8 million in the prior-year period. In local currency, net revenue decreased 8.9%.
• Net revenue from the Company's Asia segment decreased 1.9% to $134.4 million in the first six months of fiscal 2015, from $137.0 million in the prior-year period. In constant currency, net revenue decreased 6.3%.
• Net revenue from the Company's North American Wholesale segment decreased 9.0% to $77.6 million in the first six months of fiscal 2015, from $85.2 million in the prior-year period. In constant currency, net revenue decreased 7.0%.
• Licensing segment net revenue decreased 8.7% to $52.4 million in the first six months of fiscal 2015, from $57.4 million in the prior-year period.

Operating earnings for the first six months of fiscal 2015 decreased 65.4% to $27.9 million (including a $0.6 million favorable currency translation impact), from adjusted operating earnings of $80.6 million in the prior-year period. Operating margin in the first six months of fiscal 2015 decreased 430 basis points to 2.5%, compared to adjusted operating margin of 6.8% in the prior-year period. The lower operating margin primarily reflects the negative impact on the Company's fixed cost structure from negative same store sales in North America and lower wholesale shipments in Europe and more markdowns in North America and Europe . On a GAAP basis, operating earnings decreased 61.3% and operating margin decreased 360 basis points.

Other net income, which primarily includes net unrealized gains on non-operating assets and net unrealized mark-to-market gains on foreign currency contracts, was $3.6 million for the first six months of fiscal 2015, compared to $5.3 million in the prior-year period.

The Company's effective tax rate was 35.1% for the first six months of fiscal 2015, compared to 33.0% in the prior-year period.

Outlook

The Company's expectations for the third quarter of fiscal 2015 ending November 1, 2014 , are as follows:

• Consolidated net revenues are expected to range from $590 million to $600 million .
• Operating margin is expected to be between 3.5% and 4.5%.
• Diluted earnings per share are expected to be in the range of $0.15 to $0.20 .

The Company updated its outlook for the fiscal year ending January 31, 2015 , which is now as follows:

• Consolidated net revenues are expected to range from $2.44 billion to $2.48 billion .
• Operating margin is expected to be between 5.5% and 6.0%.
• Diluted earnings per share are expected to be in the range of $1.05 to $1.20 .

Dividends

The Company also announced today that its Board of Directors has approved a quarterly cash dividend of $0.225 per share on the Company's common stock. The dividend will be payable on September 26, 2014 to shareholders of record at the close of business on September 10, 2014 .

Presentation of Non-GAAP Information

The financial information presented in this release includes non-GAAP financial measures such as "adjusted" results (to exclude the impact of restructuring charges incurred during the prior-year first and second quarters), constant currency financial information and free cash flow measures. The non-GAAP measures are provided in addition to, and not as alternatives for, the Company's reported GAAP results.

The Company has excluded restructuring charges, and related tax impact, incurred during the prior-year first and second quarters from its adjusted financial measures primarily because it does not believe such charges reflect the Company's ongoing operating results or future outlook. The Company believes that these adjusted financial measures are useful as an additional means for investors to evaluate the comparability of the Company's operating results when reviewed in conjunction with the Company's GAAP financial statements. A reconciliation of reported GAAP results to comparable non-GAAP results is provided in the accompanying tables.

This release also includes certain constant currency financial information. Foreign currency exchange rate fluctuations affect the amount reported from translating the Company's foreign revenues and expenses into U.S. dollars. These rate fluctuations can have a significant effect on reported operating results under GAAP. The Company provides constant currency information to enhance the visibility of underlying business trends, excluding the effects of changes in foreign currency translation rates. To calculate revenues and earnings from operations on a constant currency basis, operating results for the current-year period are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different to the functional currency of that entity when exchange rates fluctuate. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.

The Company also includes information regarding its free cash flows in this release. The Company calculates free cash flows as cash flows from operating activities less purchases of property and equipment. Free cash flows is not intended to be an alternative to cash flows from operating activities as a measure of liquidity, but rather provides additional visibility to investors regarding how much cash is generated for discretionary and non-discretionary items after deducting purchases of property and equipment. Free cash flow information presented may not be comparable to similarly titled measures reported by other companies. A reconciliation of reported GAAP cash flows from operating activities to the comparable non-GAAP free cash flow measure is provided in the accompanying tables.

Investor Conference Call

The Company will hold a conference call at 4:30 pm (ET) on August 27, 2014 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at www.guess.com via the "Investor Relations" link. The webcast will be archived on the website for 30 days.

About Guess?

Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, footwear and other related consumer products. Guess? products are distributed through branded Guess? stores as well as better department and specialty stores around the world. As of August 2, 2014 , the Company directly operated 488 retail stores in the United States and Canada and 349 retail stores in Europe , Asia and Latin America . The Company's licensees and distributors operated an additional 848 retail stores outside of the United States and Canada . For more information about the Company, please visit www.guess.com.

 

See Source for Condensed Consolidated Statements of Income.