Third Quarter EPS Increased by 128%, to $1.05 Versus $0.46 Last Year
October 2006 Comp Sales Up 11.8%
Company Issued EPS Guidance Range for 2007 of $2.75 to $2.85
Third Quarter Highlights
- Revenues increased by 31% to $348.7 million
- Gross margin increased by 390 basis points and SG&A expense rate
decreased by 390 basis points
- Operating margin improved 780 basis points to 21.2%
- Net earnings grew 134% to $48.4 million
Nine-Month Highlights
- Revenues grew 27% to $838.8 million
- Gross margin increased by 300 basis points and SG&A expense rate
decreased by 260 basis points
- Operating margin improved 560 basis points to 14.5%
- Net earnings increased 135% to $77.5 million
LOS ANGELES, Nov. 1 /PRNewswire-FirstCall/ -- Guess?, Inc. (NYSE: GES) today reported financial results for the third quarter ended September 30, 2006.
Third Quarter Results
For the third quarter of 2006, the Company reported record net earnings of $48.4 million, an increase of 133.8% compared to net earnings of $20.7 million for the quarter ended October 1, 2005. Diluted earnings per share increased 128.3% to $1.05 per share in the current quarter versus $0.46 per share in the third quarter of last year.
Paul Marciano, Co-Chairman and Co-CEO, commented, "We are very pleased with our outstanding financial performance in the third quarter. Our results represent record-setting levels of revenues, operating margin, net earnings and earnings per share, compared to any quarter in the Company's history. Our revenues and earnings came in stronger than our expectations across all businesses and geographic regions of the world. Our operating results show the power and the potential of our business model with each of our businesses achieving significant growth and margin expansion in the quarter. As a result, the Company's operating margin expanded by 780 basis points -- a great achievement."
Mr. Marciano stated, "Starting with North America, we had a very strong quarter. Our retail business delivered top line growth of 14% and increased operating earnings by 38%. The wholesale segment increased revenues by 38% and increased operating earnings nearly fivefold."
Mr. Marciano concluded, "Our results demonstrate that our business model today is a unique one, more balanced and diversified. Europe had a remarkable third quarter and was the largest contributor to our results, generating nearly a third of our revenues and more than half of our operating profit. We see even greater opportunity in that region as we expand into northern and eastern Europe. As our European business continues to gain traction and momentum, we are now focusing on new opportunities, such as Asia."
Total net revenue for the third quarter of 2006 increased 31.3% to $348.7 million from $265.6 million in the third quarter of 2005. The Company's retail stores in the U.S. and Canada generated revenue of $178.1 million in the third quarter of 2006, a 13.9% increase from $156.3 million, as reported in the prior-year period. Comparable store sales increased 8.6% during the third quarter of 2006 versus the prior-year period. Net revenue from the Company's wholesale segment increased 37.8% to $42.7 million in the third quarter of 2006, from $31.0 million in the prior-year period. Net revenue from the Company's European operations segment increased 73.1% to $111.5 million in the third quarter of 2006, compared to $64.4 million in the prior-year period. Licensing segment net revenue increased 18.3% to $16.4 million in the third quarter of 2006, from $13.9 million in the prior-year period. The Company operated 330 retail stores in the U.S. and Canada at the end of the third quarter 2006 versus 305 stores a year earlier.
Operating earnings for the third quarter of 2006 increased 108.7% to $74.0 million from $35.5 million in the third quarter of 2005. Operating margin in the third quarter improved 780 basis points to 21.2%, compared to the prior year's quarter. This margin expansion was driven by a gross margin increase of 390 basis points to 47.0%, and an SG&A expense rate reduction of 390 basis points to 25.8% in the period.
Nine-Month Results
For the nine months ended September 30, 2006, the Company reported net earnings of $77.5 million, an increase of 134.7% compared to net earnings of $33.0 million for the nine months ended October 1, 2005. Diluted earnings per share increased 128.4% to $1.69 per share in the first nine months of 2006 versus $0.74 per share in the comparable period last year. The nine months ended September 30, 2006 had 273 days compared to 274 days in the nine months ended October 1, 2005.
Total net revenue increased 27.2% to $838.8 million in the 2006 nine-month period from $659.4 million in the prior-year period. The Company's retail stores in the U.S. and Canada generated revenue of $481.0 million for the first nine months of 2006, an increase of 18.6% from $405.7 million in the prior-year period. Comparable store sales increased 13.0% during the first nine months of 2006. Net revenue from the Company's wholesale segment in the first nine months of 2006 increased 18.4% to $104.3 million from $88.1 million in the first nine months of 2005. Net revenue from the Company's European operations segment increased 60.0% to $209.5 million in the first nine months of 2006, compared to $131.0 million in the prior-year period. Licensing segment net revenue was $43.9 million in the first nine months of 2006, a 26.8% increase from $34.6 million for the prior-year period.
Operating earnings for the first nine months of 2006 increased 108.8% to $121.9 million from $58.4 million in the first nine months of 2005. Operating margin for the first nine months of 2006 improved by 560 basis points to 14.5%. This margin expansion was driven by a gross margin increase of 300 basis points to 42.9% and a decrease in SG&A of 260 basis points to 28.4% in the period.
October 2006 Retail Sales
The Company also reported retail sales for its stores in the U.S. and Canada for fiscal October 2006. Total October retail sales for the month ended October 28, 2006 were $53.5 million, an increase of 17.6% from sales of $45.5 million for the month ended October 29, 2005. Comparable store sales for October 2006 increased 11.8%, which follows an increase of 12.3% for the October 2005 period.
Outlook for 2007
The Company has reinstated issuing earnings guidance. For the 2007 fiscal year, the Company's expectations are as follows:
- Consolidated net revenues are expected to range from $1.30 billion to $1.35 billion.
- Operating margin is expected to be in the mid-teens.
- Diluted earnings per share are expected to be in the range of $2.75 to $2.85.
The Company will hold a conference call at 4:30 pm (ET) on November 1, 2006 to discuss the news announced in this press release. A live webcast of the conference call will be accessible at www.guessinc.com via the "Investor's Info" link. The webcast will be archived on the website for 30 days.
Guess?, Inc. designs, markets, distributes and licenses a lifestyle collection of contemporary apparel, accessories and related consumer products. At September 30, 2006 the Company operated 330 retail stores in the United States and Canada. The Company also distributes its products through better department and specialty stores around the world. For more information about the Company, please visit www.guessinc.com.
Except for historical information contained herein, certain matters discussed in this press release, including statements concerning the Company's future prospects and guidance for 2007, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are only expectations, and involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from what is currently anticipated. Factors which may cause actual results in future periods to differ materially from current expectations include our ability to, among other things, anticipate consumer preferences, effectively operate our retail stores, effectively manage inventories, successfully execute our strategies, including our supply chain and international growth strategies, and domestic and international general economic conditions and consumer confidence. In addition to these factors, the economic and other factors identified in the Company's most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission, including but not limited to the risk factors discussed therein, could cause actual results to differ materially from current expectations.
Contacts: Carlos Alberini
President & Chief Operating Officer
(213) 765-3582
Dennis R. Secor
SVP & Chief Financial Officer
(213) 765-3289
Joseph Teklits
Integrated Corporate Relations
(203) 682-8258
Guess?, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data)
Three Months Ended
September 30, October 1,
2006 2005
$ % $ %
Net revenue
Product sales $332,304 95.3% $251,695 94.8%
Net royalties 16,444 4.7% 13,905 5.2%
348,748 100.0% 265,600 100.0%
Cost of product sales 184,917 53.0% 151,162 56.9%
Gross profit 163,831 47.0% 114,438 43.1%
Selling, general and
administrative expenses 89,785 25.8% 78,966 29.7%
Earnings from operations 74,046 21.2% 35,472 13.4%
Other (income) expense:
Interest expense 1,498 0.4% 1,608 0.6%
Interest income (1,686) (0.5%) (608) (0.2%)
Other, net (1,415) (0.4%) -- --
Earnings before income
taxes and minority
interest 75,649 21.7% 34,472 13.0%
Income taxes 27,312 7.8% 13,788 5.2%
Minority interest (18) (0.0%) -- --
Net earnings $48,355 13.9% $20,684 7.8%
Net earnings per share:
Basic $1.07 $0.47
Diluted $1.05 $0.46
Weighted number of shares
outstanding:
Basic 45,394 44,409
Diluted 46,103 45,162
Guess?, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data)
Nine Months Ended
September 30, October 1,
2006 2005
$ % $ %
Net revenue
Product sales $794,848 94.8% $624,802 94.7%
Net royalties 43,915 5.2% 34,641 5.3%
838,763 100.0% 659,443 100.0%
Cost of product sales 478,847 57.1% 396,304 60.1%
Gross profit 359,916 42.9% 263,139 39.9%
Selling, general and
administrative expenses 238,003 28.4% 204,752 31.0%
Earnings from operations 121,913 14.5% 58,387 8.9%
Other (income) expense:
Interest expense 4,769 0.6% 4,872 0.8%
Interest income (4,307) (0.6%) (1,503) (0.2%)
Other, net (2,587) (0.3%) -- --
Earnings before income
taxes and minority
interest 124,038 14.8% 55,018 8.3%
Income taxes 46,571 5.6% 22,007 3.3%
Minority interest (18) (0.0%) -- --
Net earnings $77,485 9.2% $33,011 5.0%
Net earnings per share:
Basic $1.71 $0.75
Diluted $1.69 $0.74
Weighted number of shares
outstanding:
Basic 45,201 44,282
Diluted 45,956 44,817
Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(in thousands)
Three Months Ended
September 30, October 1, %
2006 2005 chg
Net revenue:
Retail operations $178,119 $156,332 14%
Wholesale operations 42,666 30,955 38%
European operations 111,519 64,408 73%
Licensing operations 16,444 13,905 18%
$348,748 $265,600 31%
Earnings (loss) from operations:
Retail operations $26,003 $18,777 38%
Wholesale operations 8,529 1,776 380%
European operations 40,381 16,911 139%
Licensing operations 13,116 7,861 67%
Corporate overhead (13,983) (9,853) 42%
$74,046 $35,472 109%
Operating margins:
Retail operations 14.6% 12.0%
Wholesale operations 20.0% 5.7%
European operations 36.2% 26.3%
Licensing operations 79.8% 56.5%
Total Company 21.2% 13.4%
Guess?, Inc. and Subsidiaries
Consolidated Segment Data
(in thousands)
Nine Months Ended
September 30, October 1, %
2006 2005 chg
Net revenue:
Retail operations $481,025 $405,735 19%
Wholesale operations 104,290 88,101 18%
European operations 209,533 130,966 60%
Licensing operations 43,915 34,641 27%
$838,763 $659,443 27%
Earnings (loss) from operations:
Retail operations $49,112 $28,826 70%
Wholesale operations 14,459 4,182 246%
European operations 59,234 27,911 112%
Licensing operations 37,441 24,911 50%
Corporate overhead (38,333) (27,443) 40%
$121,913 $58,387 109%
Operating margins:
Retail operations 10.2% 7.1%
Wholesale operations 13.9% 4.7%
European operations 28.3% 21.3%
Licensing operations 85.3% 71.9%
Total Company 14.5% 8.9%
Guess?, Inc. and Subsidiaries
Selected Condensed Consolidated Balance Sheet Data
(in thousands)
September 30, December 31, October 1,
2006 2005 2005
ASSETS
Cash and cash equivalents $153,743 $171,549 $138,891
Restricted cash 35,280 -- --
Receivables, net 172,561 81,762 103,806
Inventories, net 139,690 122,037 126,387
Other current assets 39,578 32,670 28,446
Property and equipment, net 159,817 144,007 126,905
Other assets 108,148 81,349 61,576
Total Assets $808,817 $633,374 $586,011
LIABILITIES AND STOCKHOLDERS' EQUITY
Current installments of notes
payable, long-term debt and
capital lease $44,873 $35,051 $38,164
Other current liabilities 245,929 182,175 172,566
Notes payable, long-term debt and
capital lease, excluding current
installments 41,736 53,199 45,027
Other long-term liabilities 88,045 74,656 75,807
Minority interest 472 -- --
Stockholders' equity 387,762 288,293 254,447
Total Liabilities and Stockholders'
Equity $808,817 $633,374 $586,011
Guess?, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Data
(in thousands)
Nine Months Ended
September 30, October 1,
2006 2005
Net cash provided by operating activities $55,134 $92,390
Net cash used in investing activities (44,349) (54,902)
Net cash used in financing activities (29,519) (4,518)
Effect of exchange rates on cash 928 (82)
Net increase in cash and cash equivalents (17,806) 32,888
Cash and cash equivalents at the beginning of
the year 171,549 106,003
Cash and cash equivalents at the end of the
period $153,743 $138,891
Supplemental information:
Depreciation and amortization $27,408 $25,719
Rent 62,184 53,349
Guess?, Inc. and Subsidiaries
Retail Store Data
U.S. and Canada
Nine Months Ended
September 30, October 1,
2006 2005
Number of stores at the beginning of the year 315 287
Store openings 25 27
Store closures (10) (9)
Number of stores at the end of the period 330 305
Total store square footage at the end of the
period 1,602,000 1,521,000
SOURCE Guess?, Inc.
11/01/2006
CONTACT: Carlos Alberini, President & Chief Operating Officer,
+1-213-765-3582, or Dennis R. Secor, SVP & Chief Financial Officer,
+1-213-765-3289, both of Guess?, Inc.; or Joseph Teklits of Integrated
Corporate Relations, +1-203-682-8258, for Guess?, Inc.
Web site: http://www.guessinc.com
(GES)