Earnings call transcript: Guess Q1 2026 sees strong revenue growth

Guess Inc. reported a 9% year-over-year increase in Q1 fiscal 2026 revenues, reaching $648 million, driven by the Rag and Bone acquisition and European wholesale growth, despite a $26 million adjusted operating loss. The company reaffirmed its full-year revenue growth target of 5.5% to 7.4% and adjusted EPS guidance of $1.32 to $1.64, while also announcing a quarterly cash dividend of 30 cents per share. Guess is actively managing supply chain challenges and streamlining operations by exiting the Greater China market and reducing its North American store fleet to improve profitability, with InvestingPro analysis suggesting the stock is undervalued.

Analysis

Guess Inc. reported a 9% increase in total revenues to $648 million for Q1 FY2026, primarily driven by the Rag and Bone acquisition, which contributed nine percentage points to constant currency growth, while the core Guess business added three percentage points. Despite this top-line growth, the company recorded an adjusted operating loss of $26 million and an adjusted loss per share of $0.44, reflecting ongoing operational challenges and strategic transition costs. Management reaffirmed its full-year revenue growth target of 5.5% to 7.4% and adjusted EPS guidance of $1.32 to $1.64, signaling confidence in its restructuring efforts. These efforts include the integration of the outperforming Rag and Bone brand, exiting the historically unprofitable Greater China market (aiming to eliminate an estimated $20 million annual loss), and reducing its North American store fleet by approximately 20 stores, collectively projected to unlock over $30 million in operating profit in the next fiscal year. Regionally, European wholesale demonstrated robust mid-teen growth, though European retail comps declined 4% in constant currency due to traffic headwinds. Americas retail, while posting a 10% constant currency comp decline, showed late-quarter improvement and exceeded internal forecasts. Asia remains a significant concern with revenues down over 20%. Operationally, proactive early inventory purchasing to mitigate supply chain risks led to a 15% year-over-year inventory increase, and gross margins contracted by 200 basis points to 39.9%, attributed to business mix and promotions. The company is implementing multiple initiatives to enhance retail productivity, including revamped marketing, loyalty programs, and assortment adjustments, with a 10% improvement in retail sales potentially adding $70 million to operating profit. InvestingPro analysis suggests the stock is undervalued, and Guess announced a $0.30 quarterly cash dividend.

Key Decisions for Investors

• Investors should weigh the stock's apparent undervaluation and the potential benefits from the Rag and Bone acquisition and significant restructuring against the current operating losses and execution risks.
• Closely monitor the progress of key strategic initiatives, including the Greater China exit, North American store optimization, and retail productivity enhancements, as these are crucial for achieving the projected $30 million-plus profit improvement and full-year guidance.
• Assess the sustainability of European wholesale strength and any stabilization in challenged Americas retail and Asian markets, alongside the management of elevated inventory levels once supply chain pressures ease.
• Consider the $0.30 quarterly dividend as a component of total return, but balance this with the inherent risks of a company undergoing substantial operational transformation in a dynamic consumer environment.