This summer was one to forget for Guess Inc., as its new lines of jeans and dresses did not suit its customers. And that left its shareholders questioning their faith in the business.
The downtown L.A. company, which designs, sells and licenses clothing and accessories, reported weak second-quarter sales after markets closed Aug. 27. Its women’s denim and dresses performed particularly poorly.
Shares of Guess plunged after the release, hitting a 52-week low. The stock fell 9.2 percent for the week ended Sept. 3 to close at $23.28. Guess was one of the biggest losers on the LABJ Stock Index. (See page 28.)
Jeff Van Sinderen, an analyst who covers Guess for West L.A. investment bank B. Riley & Co., wrote that intense price competition in the clothing business has dampened the company’s profitability, and he doesn’t expect things to get much better. The recent departure of the denim company’s head merchant and head designer only compounded its problems.
“With a highly promotional environment in North America, challenging wholesale environment in Southern Europe, Asia still to turn around and generally intense challenges in denim, upside to quality of business and margins appears limited in the near term,” Van Sinderen wrote in an Aug. 28 report on the company.
The note was issued the day after Guess reported net income of $22 million (26 cents a share) for the 13 weeks ended Aug. 2, compared to $44.3 million (52 cents a share) for the same period a year earlier. Analysts had estimated earnings of 29 cents a share on average. Revenue was $609 million, down 5 percent.
The company did not respond, but in an Aug. 27 conference call discussing the earnings, Chief Executive Paul Marciano chalked up much of the poor performance to Guess’ failure to make dresses that impressed.
“What has been the disappointment, which was a core business for us normally, is dresses,” Marciano said. “Basically, the performance and styling has not been exactly what the customers wanted.”
Guess’ Internet sales were a bright spot, up 48 percent from the same period last year, but even that couldn’t make up for slowness in retail outlets.
“The strengths we saw in e-commerce was not enough to offset the overall weakness in our regular stores, where our total North America retail business finished below expectation,” Marciano said on the call.
He added that as customers increasingly prefer to shop online, the company plans to significantly reduce its real estate footprint in a cost-saving move.
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