Earnings preview: Costs and tariffs to hurt Guess? Q2

Guess? Inc. (NYSE: GES) is scheduled to report its second-quarter earnings on Wednesday after the market closes. The additional pressure from any extension of tariffs on Chinese imports could put the US apparel companies to close down stores. The results will be hurt by an increase in costs and expenses.

The retail promotions and relocation of distribution centers could impact the bottom line results, which is likely to be adversely impacted by foreign currency translation. The adjusted results are expected to be hurt by deleveraging expenses in Asia. The company has taken a turnaround strategy by cutting down dividends as part of the capital allocation changes.

However, the top line will be benefited by the expansion of operations in Europe as constant store openings and e-commerce advancements are driving the business forward in the region. The Europe region is likely to give a sustainable and impressive performance for the second quarter.

As of May 4, 2019, the company had about $19.6 million of secured debt, $347.6 million of senior unsecured debt at maturity and about $206.7 million of trade payables. The company’s cash needs are likely to increase in the future for paying the debt due to neglecting sufficient funds and non-maintenance of cash reserves.

Analysts expect the company’s earnings to drop by 19.40% to $0.29 per share while revenue will rise by 4% to $671.42 million for the second quarter. In comparison, during the previous year quarter, Guess posted a profit of $0.36 per share on revenue of $645.87 million. The company has surprised investors by beating analysts’ expectations twice in the past four quarters.

Read: Veeva Systems Q2 earnings preview

For the first quarter, Guess reported flat results in the bottom line as higher revenues offset an increase in costs and expenses. Sales grew across most of its segments with American Wholesale recording 14% growth offset by 5% drop in the licensing division.

For the second quarter, the company expects revenue to increase in the range of 4% to 5% and adjusted earnings in the range of $0.27 to $0.30 per share. For fiscal 2020, the retailer predicts the top-line growth in the range of 3.5% to 4.5% and adjusted earnings in the range of $1.19 to $1.30 per share.

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