Guess? Conference Call Highlights

Guess? (NYSE: GES) reported its Q3 earnings. Shares of the company are down 9 percent.

Below are some key highlights from its conference call.

Performance Metrics:

• We reported third quarter results and posted earnings per share of $0.24, which was above our guidance.
• Our operating performance was in line with our expectations.
• Overall, the environment remains soft in the North America Retail stores with a continuation of the last quarter trend.
• In Europe, despite a softer third quarter than expected, we're encouraged by the current performance of both our retail and wholesale businesses.
• In North America, our e-comm business grew by 38% in the third quarter a very good momentum we have seen since a year ago.
• In terms of product, as expected, we saw weaknesses in women's.
• In Asia, our business finished slightly below expectation in the third quarter.
• The South Korean economy remained soft in consumer demand, and we have to be more promotional than we plan.
• In Greater China, we continued to see softness in comp, mainly driven by overall macroeconomic environment.
• A central part of that plan in addition to constant drive to improve our product offering is to evaluate the profitability of the different businesses in our global portfolio.
• Reducing the size and cost structure of the less profitable ones, while securing capital investment to the one with more profit potential growth in this area.

Financial Metrics:

• Net earnings for the third quarter was $21 million and diluted earnings per share was $0.24 compared to $0.42 adjusted diluted earnings per share in last year's third quarter.
• Third quarter revenues were $590 million, 4% lower than the prior year and down 3% in constant currency.
• Total company gross profit for the third quarter was below our expectations at $214 million, down 6%.
• Gross margins declined 90 basis points to 36.3% due primarily to negative comparable store sales and more markdowns in North America Retail.
• SG&A dollars increased 6% versus the prior year to $189 million. The increase in SG&A was primarily due to higher asset impairment charges related to underperforming retail stores in North America and Europe.
• Operating earnings for the third quarter was $25 million. Our operating margin declined 390 basis points to 4.2%.
• Other net income was $7 million and mostly consisted of net unrealized and realized gains on foreign currency contracts and net unrealized gains on other non-operating assets.
• Our effective third quarter tax rate was 33%.
• This is higher than our expected full year tax rate of 32% due to a shift in earnings distributions between different taxable jurisdictions within the quarters.

Segment Performance:

• In North America Retail, third quarter revenues dropped 4% to $243 million.
• Negative comps in brick-and-mortar stores were partially offset by 38% growth in our e-commerce business.
• Overall, comp store sales including e-commerce declined 5% in the U.S. and Canada, and 4% in constant currency.
• E-commerce sales improved the overall comps by 2 percentage points.
• Operating earnings decreased by $17 million to a loss of $11 million, and operating margin declined 670 basis points to negative 4.3%.
• Compared to last year's quarter, gross margins were lower due to occupancy deleverage and more markdowns.
• During the quarter, we opened eight new stores and closed four, ending the period with 492 stores.
• In Europe, third quarter revenues were $190 million, a decline of 6% in U.S. dollars and 3% in local currency.
• Operating earnings decreased by 43%, or $6 million, to $8 million.
• In Asia, revenues in the third quarter declined 2% to $71 million and declined 5% in constant currency.
• The decline in revenues was mainly driven by negative comps in South Korea and China.
• Operating earnings fell 64% to $2 million and operating margin dropped 510 basis points to 3%.
• In North America Wholesale, third quarter revenues were flat compared to our prior year at $54 million.

Guidance and Trends:

• In our North America Retail business, comp sales are down in the high-single-digit so far in the fourth quarter and we are planning the fourth quarter, assuming a comp decline, in the high-single-digit range.
• This would translate into a revenue decrease in the mid-single-digits.
• For the full year, we expect comp sales to decrease in the mid-single-digits and for revenues to be down in the mid-single-digits.
• In Asia, economic conditions continue to be challenging, especially in Korea where comps continue to be soft so far in the fourth quarter.
• These expectations would result in full year consolidated revenues between $2.42 billion and $2.43 billion.
• Operating margin between 5% and 5.5%, and earnings per share in the range of $1 and $1.10 per share.