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Guess' stock jumps after its earnings beat forecasts, with growth in Europe and Asia

Guess' stock jumps after its earnings beat forecasts, with growth in Europe and Asia
A Guess store at South Coast Plaza in Costa Mesa in 2011. (Mark Boster / Los Angeles Times)

Guess Inc.’s stock rose sharply Thursday after the Los Angeles apparel company, which is trying to reverse years of slumping earnings, reported second-quarter profit that topped expectations.

The stock climbed 5.6% to $24.23, putting it up 50% in the last 12 months. Earlier in the day, it was up more than 17%.

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Guess said Wednesday that profit for its fiscal second quarter, which ended Aug. 4, jumped 68% from a year earlier to $25.5 million, while revenue climbed 14% to $645.9 million. The gains were led by strong results in Europe and Asia, the company said.

Guess’ per-share earnings, after adjusting for one-time gains and charges, amounted to 36 cents in the latest quarter, up from 19 cents in the year-earlier quarter and topping the 32 cents forecast by analysts polled by FactSet.

“I feel confident that the ‘turnaround’ has only just begun, as we are well-positioned to exit this fiscal year with every business segment profitable,” Guess Chief Executive Victor Herrero said in a statement.

Founded as a jeans company in 1981, Guess — with about 14,700 employees — now designs and sells a variety of apparel aimed primarily at shoppers ages 20 to 35. Its sales channels include 1,662 stores operated by Guess and its licensed partners worldwide.

Guess has struggled with drooping earnings and flat revenue in recent years, especially in the U.S. market.

In its fiscal year that ended Feb. 3, Guess posted a $7.9-million loss on revenue of $2.4 billion. Four years earlier, the company earned $153.4 million on revenue of $2.5 billion.

Herrero, who took over as CEO from co-founder Paul Marciano in 2015, has been trying to reverse the trend by building up Guess’ European and Asian operations, negotiating lower store leases, liquidating old inventory and elevating Guess’ brand among millennials and younger adults, among other steps.

For instance, Guess has heavily invested in videos that promote its apparel, which Herrero said is “the preferred method of communication for the millennial and the Gen Z demographics.”

“We are delivering that content through key social-media platforms like YouTube and Instagram,” moves that “are gaining real traction,” Herrero told analysts on a conference call Wednesday.

Susan Anderson, an analyst with the investment firm B. Riley FBR, said that Herrero “has been getting new customers to come into the brand” and that the look and appeal of Guess’ clothing have gained traction with consumers.

“The hope, obviously, is they will go online or into their stores and start purchasing more of [Guess’] merchandise,” Anderson said.

Herrero said Guess’ European and Asian divisions are expected to show double-digit percentage gains in revenue this year, and that Guess’ U.S. same-store sales — sales at its stores open at least a year — should “be positive for the first time in eight years,” he said.

“I see Americas retail joining the turnaround and expect it to return to profitability this year after two consecutive years of losses,” he said.

Guess said its European and Asian units reported gains in fiscal second-quarter revenue of 19% and 29%, respectively, after excluding currency fluctuations.

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Before being named CEO in 2015, Herrero had spent a decade building the Asian business of Inditex Group of Spain, whose units include apparel retailer Zara.

Herrero took over Guess’ day-to-day operations in February in the wake of sexual-harassment allegations against Marciano by model Kate Upton and others. Marciano denied the allegations.

A special committee of independent Guess directors investigated the matter, and in June the company said in a government filing that it “found that on certain occasions, Mr. Marciano exercised poor judgment in his communications with models and photographers and in placing himself in situations in which plausible allegations of improper conduct could, and did, arise.”

Guess said it settled claims arising out of the allegations with five individuals, who were not identified, for a combined $500,000 without admitting fault.

In addition, Guess said Marciano, 66, would not renew his employment contact with the company after it expires Jan. 30. He’s currently a director and chief creative officer.

3:20 p.m.: This article was updated with revised stock data.

11:50 a.m.: This article was updated with revised stock data and details about the investigation of Paul Marciano over allegations of sexual harassment.

10:45 a.m. This article was updated with additional details about Guess’ second-quarter performance and history, remarks by its CEO to analysts, and one analyst’s comments.

This article was originally published at 9 a.m.

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