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Guess' net income climbs 77%

The apparel maker moves ahead with plans for new stores with more affordable clothes.

February 15, 2007|Leslie Earnest | Times Staff Writer

Guess Inc., with its trendy apparel business on a roll and its European sales swelling, is moving ahead with plans to woo younger shoppers this year with more affordable clothes.

While reporting its latest robust quarterly sales and 77% jump in profit, the company said Wednesday that its first G by Guess store would open in April at the North County Mall in Escondido. An additional 24 stores will open by the end of July.

The launch puts Guess in more direct competition with other hot retail chains such as Hollister Co. and American Eagle Outfitters Inc.

"They are competing against very strong competitors, but they have their own cachet themselves," said Eric Beder, an analyst with Brean Murray, Carret & Co. "You could argue they could double the number of stores they have in the U.S. if G by Guess works."

The L.A.-based company also announced the opening of six Guess shoe stores this year.

Like many of its clothes, the company's financial results Wednesday were eye-catching. In the last quarter of 2006, Guess notched gains in all business segments as its hot streak sizzled.

The company boosted its earnings projection for the year and announced that it would split its stock and start paying dividends for the first time since going public in 1996.

"We feel our growth will be sustainable if we keep our discipline and our focus," Chief Executive Paul Marciano told analysts during a conference call.

It was Guess' 14th straight quarter of profit growth. For the year, earnings more than doubled.

The company's shares closed at $74.58, down 36 cents. The earnings were released after the market closed. In after-hours trading, the stock jumped nearly 6%.

Guess has been racking up sales gains in recent years after shifting its focus to retailing from wholesaling in 2000. It now operates 334 Guess, Guess Accessories and Marciano stores in the U.S. and Canada. Licensees and distributors operate most of the 413 stores elsewhere in the world.

Much of the company's future growth is expected to come from its international business and Guess is working to gain more control in that arena.

Last month, the company said it had purchased a 75% interest in licensee Focus Europe, including the leases of four Guess by Marciano stores in Italy. Two years earlier, it bought its European jeans-wear licensee.

"I think there's some real positive traction to be gained from that," said analyst Melissa Otto with WR Hambrecht & Co. "They've been doing a great job in the U.S., but the great thing about the European business is its higher margin. There's a lot more upside opportunity there as they bring that in-house."

Guess opened a new European headquarters in Florence, Italy, last year along with a showroom in Hong Kong to better reach markets in China, South Korea and Japan.

In the quarter ended Dec. 31, profit jumped to $45.7 million, or 99 cents a share, from $25.8 million, or 57 cents, in the same period of 2005. This was above analysts' expectations.

Net revenue rose 25.2% to $346.4 million from $276.6 million. Sales at stores open a year or more, a key indicator of a retailer's health, jumped 10.8%

"The ultimate take-away is that things seem to be firing on all cylinders right now for the company," said Scott Birkby, an analyst with Caris & Co.

The new G by Guess stores will feature a "retro L.A." design and offerings that are trendy but not cutting edge, the company said. The stores will open in shopping centers that cater to middle- and lower-income households and in outlet malls.

Ultimately, shoppers will decide how much the chain will expand, Guess' Marciano said.

"We're waiting for the verdict from them in five or six months," he said.

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