Guess Inc. sales bounced back in the fourth quarter as the company powered through the pandemic, inflation and an activist campaign challenging Paul Marciano’s continuing role at the company after allegations of misconduct.
The denim specialist’s revenues for the three months ended Jan. 29 increased 23.4 percent to $799.9 million from $658.5 million a year earlier. Net profits slipped 2.8 percent to $68.4 million from $70.4 million.
That capped a strong bounceback from last year, when COVID-19 hit the fashion industry hard.
Revenues for the year increased 38.1 percent to $2.6 billion from $1.9 billion. The bottom-line improvement was stronger with 2021 profits of 171.4 million comparing with 2020 losses of $81.1 million.
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Compared with 2019, profits last year rose 79 percent while revenues slipped 3.2 percent.
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And that in a nutshell, is what many fashion retailers have sought to do over the pandemic — build businesses that are not necessarily larger, but more profitable by virtue of closing underperforming stores, boosting prices and other updates.
Now the challenge is to keep moving ahead amid war in Ukraine, a budding struggle between higher prices and higher interest rates and with activists on the watch.
“This has been an incredible year for our company where we completely transformed our business,” said Marciano, who is cofounder and chief creative officer. “Our brand elevation strategy is at the center of that transformation. Today, the Guess brand enjoys strong momentum all over the world and the consistency of our assortments and brand images globally, the quality of our products and the perceived value of our offerings are among the best they have been in the history of Guess.”
Clearly, Marciano is still front and center at the brand he founded in 1981 with his brother, Maurice, who sits on the company’s board.
But activist investor Legion Partners is howling for the resignation of Paul Marciano, who stepped away from the company in 2018 after a series of misconduct allegations that started with a revelation from model Kate Upton.
While he was set to transition out of the company, he ended up staying on in 2019, but giving up his title of executive chairman.
Legion has detailed what it described as a “long list of sexual assault and harassment allegations” and called on the independent members of the company’s board to take action.
“The members of the board have made half-hearted assurances and empty promises to us that they want to do the ‘right thing,’” said Ted White, Legion’s cofounder and managing director. “Actions speak much louder. “With the disclosure [this month] that the Guess annual meeting would be moved up more than two months — what we perceive as a blatant and highly irregular maneuver to try to prevent Legion or other shareholders from being able to take action as shareholders — the independent directors have signaled they are going down a cowardice path.”
Guess, however, said it has tried to work out “mutually agreeable path forward” with Legion and discussed “not only a new ESG committee of the board with a strong oversight mandate, but also a significant capital allocation program to benefit all Guess shareholders, and other measurable governance commitments.”
The company said it was trying to get through the episode quickly and that its decision to continue to employ Marciano was “informed by the findings of the months-long special Committee investigation, which was determined to be more comprehensive, conclusive and accurate than anything reported in the media or elsewhere.”
Guess will hold its annual shareholder meeting on April 22.
And chief executive officer Carlos Alberini told analysts on a conference call that Guess has a good story to tell for the year, and remains open to a resolution with Legion that would let the company “focus all of our energy and time on execution.”
Alberini said the fourth quarter “caps an outstanding year for our company.”
“We ended the year with a strong balance sheet and a return on invested capital of 26 percent, the highest it has been in 10 years,” he said. “We also returned capital to our shareholders via our increased dividend as well as the repurchase of over $50 million in shares in Q4.”
The CEO detailed both opportunities and challenges for the year ahead.
“Consumer demand will remain strong as wages continue to rise and people return to life outside their home post pandemic,” he said. “For this year we see a recovery in store traffic particularly in regions which have been slower to rebound from the pandemic like Europe. We expect that international tourism will provide renewed business across regions particularly in the back half of the year.
“At the same time, we will continue to be impacted by supply chain disruptions including the recent COVID[-19] surge in China and we will face more uncertainty and volatility given the potential global impacts of the war in Ukraine,” he said.
In addition to its charitable efforts, Guess’ employees in Poland are supplying war refugees with housing, food, blankets and other necessities.
The company has a joint venture in Russia and Alberini said: “We’re actively discussing and negotiating actions with our Russian partner. For the time being we’re suspending deliveries and investments into Russia and closing our direct e-commerce business.”
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