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Guess Pops Following Earnings Beat

Laurie Kulikowski
Friday, 31 May 2013 | 1:43 PM ET
Source: Guess | Facebook

Guess? shares surged more than 9 percent Friday following better-than-expected profit despite a significant decline from the year before.

Investors cheered the fashion apparel and accessories company's ability to manage their profitability despite significantly slower sales in the May 4-ending quarter. For the latest Guess stock price click here.

Guess reported adjusted net earnings of $11.7 million for the 2014 fiscal first quarter, a 56 percent decrease from the first quarter of 2013. Adjusted earnings per share were 14 cents compared to 30 cents a share the year prior.

During the first quarter, Guess implemented plans to streamline its operational structure and reduce expenses. Earnings per share based on GAAP accounting, which excludes a restructuring charge of $2.3 million, or 2 cents a share, were 12 cents a share.

The Los Angeles-based company was expected to post a first-quarter profit of 8 cents a share, on average, on revenue of $550 million, according to Yahoo! Finance.

Net revenue slipped 5.2 percent to $548.9 million. Revenue from operations in North America and Europe were 5 percent and 13 percent lower in the period, respectively, while sales in Asia jumped 10 percent. Guess said that North American retail comp sales declined 9.8 percent in the quarter.

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"Despite the continued global economic challenges, we are pleased to deliver better than expected first quarter earnings," CEO and co-founder Paul Marciano said in the earnings release. "These earnings reflect the ongoing success within the company to globally streamline and improve productivity. While we are encouraged by our start to fiscal 2014, the near term outlook for consumer spending remains soft and we are planning our business accordingly. Southern Europe continues to be our main concern going forward."

Guess said that adjusted operating margin in the first quarter declined 430 basis points to 2.5 percent, compared to operating margin of 6.8 percent in the prior-year quarter.

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The lower operating margin "primarily reflects the impact of negative same store sales on the company's fixed cost structure, lower sales in our European wholesale business and more markdowns in our North American retail business, partially offset by lower corporate expenses," according to the earnings release.

During the quarter, Guess hired a new head of design—Hillary Super, who has held senior merchant roles at American Eagle Outfitters and Gap. It also hired a former Limited Brands Victoria's Secret executive as its head of retail merchandising for North America during the quarter. The company is now focused on filling its COO and CFO positions, Marciano said.

(Read More: Gap Earnings and Revenue Top Expectations)

"I strongly believe that product and design are the right direction today," Marciano said during the earnings call. "I also believe that the executive management team will be complete in the next 60 days. I see some clear and positive economic signs in U.S. that should continue going forward. And because of that, we have clear and compelling long-term growth opportunities, and I remain very confident in the strength of our brand."

The company expects second-quarter earnings in the range of 34 cents to 38 cents a share on consolidated net revenue of $620 million to $635 million. Analysts have the retailer reporting earnings of 36 cents a share on revenue of $618 million.

Guess maintains its full-year earnings guidance of $1.70 to $1.90 a share.

Guess operated 511 retail stores in the U.S. and Canada at the end of the first quarter.

_ By Laurie Kulikowski, TheStreet.com

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