Guess Inc. Faces Challenges in U.S. Market With Europe and Asia Taking the Lead

Manufacturing

As of Wednesday, November 22, 2017

Guess?, Inc. was founded in Los Angeles nearly 40 years ago with its eye on the U.S. consumer, but its weakest market now is the United States and the Americas region.

In the past two years, since Victor Herrero was named the company’s chief executive officer, business has been improving at a strong pace in Europe and Asia. But the Americas remains a challenge.

During a conference call on Nov. 21 highlighting the venture’s third-quarter results for fiscal 2018, Herrero noted that the 60 store closures announced earlier this year will now turn into 70 outposts—with most of those doors in the United States.

The company already made a $22 million up-front payment to a common landlord—with $12 million recognized as net losses on lease terminations and $10 million in advance rent payments.

“Also, as more than half our leases will expire in the next three years, we have a lot of flexibility to close stores and further improve our profitability,” the CEO said.

For the third quarter that ended Oct. 28, Guess had 315 directly operated stores in the United States, down 26 stores from one year ago. Canada had 96 directly operated stores, 15 fewer than last year, and Central and South America saw an increase of six stores to 56 outposts.

The Americas market—which covers the United States, Canada, Mexico and Brazil—has seen a continuing slide in same-store sales. Overall for the third quarter, retail revenues in the Americas sank 13.4 percent and comparative sales, including e-commerce, declined 10 percent.

Europe and Asia were a different story. European revenues jumped 18.8 percent with retail comp sales moving up 10 percent, and Asia revenues saw a healthy 16.8 percent spike with retail comp sales seeing a more moderate 3 percent increase. “I believe Europe and Asia still offer a lot of opportunity and should continue to grow double digits next year,” Herrero said.

For the third quarter, Guess saw a net loss of $2.9 million compared to a net profit of $9.1 million for the same time period last year. Net revenues were up 3.3 percent to $554.1 million.

For the first nine months of fiscal 2018, Guess had a net loss of $7 million compared to a $16 million net profit in 2017. Revenues for the nine-month period were up 3.7 percent to $1.6 billion compared to last year’s $1.53 billion.

Herrero said the company is improving its product offerings all the time and trying to be on trend while maintaining a sexy and edgy look. Guess has also employed several celebrities, including Camila Cabello and Joe Jonas, to enhance the label’s attractiveness. Jennifer Lopez will be the model for the Spring 2018 campaign.

Herrero was named the company’s new chief executive in July 2015 to replace Paul Marciano, one of the four Marciano brothers who founded the company in 1981. Herrero had been the head of Asia Pacific for Inditex Group, whose nameplates include Zara, Massimo Dutti and Pull & Bear.