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Guess Trims Vendors, Diversifies Denim Offering

Sourcing Journal
Sourcing Journal
 2021-11-29
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Guess ’ growing position as a lifestyle brand is driving executives’ confidence for the future.

Though the company expects revenues in the fourth quarter to be down mid-single digits versus the fourth quarter of fiscal 2020 due to the impact of permanent store closures and an unfavorable shift of European wholesale shipments, Guess, Inc. CEO Carlos Alberini attributed its steady Q3 to the popularity of categories like handbags, dresses, outerwear, and, perhaps what it’s best known for: jeans.

“Guess is a true lifestyle brand and is poised to capitalize on current consumer trends,” he said during the company’s Q3 earnings call last week. “Casualization is here to stay, which will help fuel our continued growth in categories like denim.”

He added that the brand’s “diversified denim offering” is continuing to expand, with looser silhouettes like straight leg, mom jeans and flare fits becoming a “key opportunity for future growth.”

Total net revenue for the third quarter ended Oct. 30 increased 4.4 percent to $643.1 million from $615.9 million. It is positive news regarding the company’s recovery from the Covid-19 pandemic—and the momentum is expected to continue. Alberini estimated that the company will deliver an operating margin of 11 percent in the current year, double that of fiscal 2020 before the pandemic.

“I am very pleased with our performance for the current year, but I am even more excited with what lies ahead for us,” he said.

The company’s wholesale businesses in North America and Europe have seen significant increases in operating profit and margin expansion, and retail is on the mend. “These results clearly signal that we are continuing to gain market share,” said Alberini, who added that tourist locations are showing an uptick in foot traffic, indicating restrictions are loosening up and consumers are becoming more comfortable with travel.

This year alone, the company opened 55 retail locations , many of which were popups that serve as a tool for new customer acquisition and “complete the omnichannel experience.” It continues to roll out omnichannel and ship-from-store capabilities in all European countries.

Alberini noted that the North America and Europe markets have added 1 million new customers this year—85 percent of which provided mobile phone numbers and 20 percent of which provided their home addresses, providing new opportunities for SMS and mailer marketing.

Streamlining business

But while the pandemic may be in the rear view for many countries, others are taking longer to recover. Guess’ Asia market had a challenging quarter as a result of government restrictions in several countries, including China, Japan and Taiwan. In Asia, revenue was down 8 percent since last year and down 31 percent since 2019—declines that can largely be attributed to the region’s permanent store closures.

To compensate, the company has begun resetting its global business model, removing unproductive stores and accounts, and reducing product offerings to maintain a “simpler business with more productive SKUs.” It has also reduced promotions in an effort to increase revenue as well as consumer perception of the brand, noting that its lack of Labor Day promotions “had an impact on [its] top line, but of course benefitted [its] bottom line.”

The company is not immune to the effects of the global supply chain disruption wreaking havoc across all industries.

“It will come as no surprise that our product development cycle has been impacted by the unprecedented challenges that the world is facing on the supply and logistics side,” Alberini said.

To mitigate the challenges, the company has consolidated vendors from over 500 to 135, and orders products in advance to allow for extended lead time. It moved 10 percent of apparel sourcing to locations that are closer to distribution, and is exploring alternative shipping methods such as trains to move products faster between China and Europe. In some cases where it makes sense, the company is also considering air transportation.

Another challenge facing Guess—as well as the fashion industry as a whole—is an uptick in cotton prices . The brand noted that it has “contracts that cover us into Q3 next year,” and is looking at alternative options, like recycled cotton, to re-strategize. In this way, the disruption has bolstered the company’s sustainability efforts, which include aggressive targets to reduce corporate greenhouse gas emissions by 50 percent, cut supply chain emissions by 30 percent by 2030, and to achieve net zero by 2050.

Overall, the company is confident that it will reach its revenue goals of $2.8 billion in 2024, and stated that this period is crucial to that success.

“We’re in front of the most significant period of the year for us,” Alberini said. “We have a lot of business that we are expecting to get, we have a great team, we have the inventory, and that is so important during this time.”

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