Guess to pay $45M to resolve European antitrust investigation
UPDATE: December 18, 2018: The European Commission Dec. 17 fined Guess €39.8 million ($45.2 million) "for restricting retailers from online advertising and selling cross-border to consumers in other Member States, ('geo-blocking'), in breach of EU competition rules," according to a press release. The practice allowed the apparel brand "to maintain artificially high retail prices, in particular in Central and Eastern European countries," Commissioner Margrethe Vestager, the agency's antitrust chief, said in a statement.
Guess on Wednesday reported that third quarter total net revenue rose 10.3% (13.1% in constant currency) to $605.4 million, up from $549 million in the prior-year quarter. Adjusted earnings from operations in the quarter rose 70.1% to $22.3 million, compared to $13.1 million last year. Adjusted operating margin expanded by 130 basis points year over year to 3.7%, according to a company press release.
By region in the quarter: revenues in the Americas fell 0.1% (and increased 1.1% in constant currency) while comp sales including e-commerce rose 3% (4% in constant currency) and wholesale revenue rose 15.5% (18.2% in constant currency). In Europe, revenues rose 14.8% (19.8% in constant currency) and retail comps including e-commerce rose 8% (12% in constant currency). Asia revenues rose 20.4% (21.8% in constant currency) and comp sales including e-commerce rose 8% (9% in constant currency).
As part of its cooperation with a European Commission antitrust investigation, the company said that it is likely to reach an agreement to pay a fine ranging from €37 million to €40.6 million ($42.4 million to $46.6 million), so it’s recording an estimated charge of €37 million ($42.4 million), according to the release. “The Company has already made certain changes to its business practices and agreements in response to these proceedings, and the Company believes that such changes have not had, and will not have, a material impact on its ongoing business operations within the European Union,” the press release stated.
Earlier this year Guess was buffeted by allegations of sexual assault against Co-Founder Paul Marciano, who eventually resigned following an investigation of his conduct. But all the while CEO Victor Herrero has been executing a turnaround that is seeing traction across geographies.
That includes Europe, a region where many apparel brands are faltering. The company has based its revival in the Americas on its success there. "[W]e’re really thrilled with the performance in Europe. This is the 13th consecutive quarter of positive comps that we’ve had over there," CFO Sandeep Reddy told analysts on a conference call, according to a transcript from Seeking Alpha. "[W]e’ve talked about the strategic initiative to elevate the quality of the sales and [merchandising] organization. This initiative has been implemented globally from the get-go. So the results have started coming more recently in the Americas in the last three quarters, but it’s been coming for a while in Europe."
The brand runs 20 stores in Europe, and, after opening stores in Italy, Spain, Turkey, Greece, the UK, Hungary, Germany, Austria, Russia and Poland, the quarter "is the first time the number of directly operated stores in Europe has exceeded the number of directly operated stores in the Americas," Herrero said. " Our European wholesale business also continued to be very strong. We closed our fourth consecutive season of double-digit growth in spring/summer 2019, extending our progress in our strategic initiative to revitalize the wholesale channel."
That strategy has included training store associates, bringing their feedback to corporate operations, "partnering with a number of celebrities and influencers using social media" and elevating visual merchandising in windows and stores, Herrero said. "At the end, it isn’t any one thing that drives these strategic initiatives but a number of small elements that combine to have a collective impact of our sales performance."
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