Shares of Guess Inc. rose more than 10 percent in the early moments of after-hours trading Wednesday after the firm reported a smaller decline in fourth quarter net profits than analysts had expected.
The results came as a fracture developed in what had appeared to be a quiet public relationship between Paul and Maurice Marciano, chief executive officer and non-executive chairman of the company, respectively, and their brother and former partner Georges Marciano, who brought suit against the company in a Montreal court.
In the three months ended Jan. 31, the Los Angeles-based jeanswear and sportswear company reported net income of $53.9 million, or 63 cents a diluted share. The EPS figure was 6 cents above the analysts’ consensus estimate while the net income figure was down 22.6 percent from the $69.6 million, or 82 cents, delivered in the final quarter of fiscal 2013.
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Total revenues contracted 9.3 percent, to $696.7 million from $768.4 million, and dropped 4 percent on a currency-neutral basis.
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“Currencies will definitely be a headwind if they stay at current levels,” said Paul Marciano. “But, as always, we will remain focused on what we can control, like our North America retail estate realignment, providing a unique customer experience within our stores and tightly managing our costs and inventory levels.”
Shares jumped 10.2 percent to $18.44 in the first 60 minutes of after-hours trading after falling 2.5 percent to $16.74 during the regular New York Stock Exchange trading session. Results were released after the close of the markets.
All five of Guess’ business units experienced revenue declines in the quarter, with the largest a 16.1 percent drop, to $240.9 million, in Europe. However, the European drop-off was reduced to 5 percent at current currency. The largest business unit, North American retail, weathered a 3.7 decline, 2 percent at constant currency, to $317 million.
Asian sales fell 9.1 percent to $75.4 million and North American wholesale revenues were down 10.2 percent to $36.6 million. At constant currency, the Asian decline was 7 percent and the North American wholesale decline 7 percent.
Calling fourth-quarter results “in line with our expectations,” Paul Marciano commented, “In North America, we were pleased by the emerging trends, as comps and traffic improved in the back end of the quarter. Our e-commerce business continues to show strength, with 37 percent growth in the quarter and almost $80 million in revenues for the full year.”
The Marciano line had double-digit comparable sales in the quarter, and handbags and footwear performed well, he said.
The ceo also pointed to “the strong performance of outerwear, where we invested heavily and delivered positive comps. However, that was more than offset by softness in woven and knit tops and basic denim. So far in Q1 of this year, we have seen definite improvements in trends in denim, wovens and dresses, and we’re starting to see more results of the design change we made.”
For the full year, Guess had net income of $94.6 million, or $1.11 a diluted share, 38.4 percent below the $153.4 million, or $1.80, registered during fiscal 2013. Revenues were off 5.9 percent to $2.42 billion from $2.57 billion and gross margin fell to 35.9 percent of revenues from 38 percent in the prior year.
Without providing specific numbers, he said that the company would continue to reduce its store count in North America, targeting stores that “are either unprofitable or no longer in brand-appropriate locations or both. We are taking the same approach in Europe and Asia on a smaller scale.”
The company is also continuing to add Marciano products to its Guess stores in North America and expects to “almost double” locations in which this is the case this year.
In guidance, the company projected a net loss of between 3 and 6 cents a diluted share in the first quarter versus analysts’ expectations of a 3-cent loss. Full-year EPS was forecasted at between 75 and 95 cents a diluted share, with currency fluctuation subtracting about 50 cents from the total. The consensus estimate prior to the earnings report was for EPS of $1.04.
Meanwhile, Georges Marciano filed suit against the company in Superior Court of Quebec seeking damages totaling 1.2 million Canadian dollars, or $1.1 million at current exchange, alleging that Guess had prevented him from earning a living using his own name by contesting his application for a Canadian trademark for Royal Navy by Georges Marciano and eliminating him from the company’s history.
The trademark matter references an agreement between Georges Marciano and Guess in 1994 in which he was granted the right to use his own name following his departure from the company and the sale of his shares to his brothers.
Eighty percent of the damages are sought in connection with Georges’ exclusion from the company’s history and seek to have his role in the company included in its public documents. According to the suit, Georges Marciano founded Guess with Georges Atlan in 1980 and his brothers joined the company the following year.
The suit also asks the court to rule on the validity of three recent trademarks for which Georges Marciano has applied — Georges Marciano Ranch, Georges Marciano and Georges Marciano by Georges Marciano — and, based on consumer confusion alleged by Guess in its objection to the Georges Marciano trademark, prohibit use of the Marciano brand without the inclusion of a first name.
According to Paul Marciano, “The case is merit-less.”