Guess? Stock Troubled by Regional Struggles & Cost Pressures

Core Viewpoint - Guess?, Inc. is facing significant challenges in its operating environment, particularly in North America and Asia, leading to a notable decline in stock performance and revised financial projections [1][8]. Financial Performance - In the third quarter, comparable sales in North America fell by 15%, while in Asia, constant currency comparable sales dropped by 16%, primarily due to weak demand in key markets like China and South Korea [2]. - The company's gross margin contracted by 110 basis points to 43.6%, and SG&A expenses increased by 180 basis points to 37.8% of sales, resulting in an adjusted operating margin of 5.8%, down from 8.9% a year ago [5]. Cost Pressures - Freight costs have significantly impacted the company's operations, with an additional $5 million in freight-related expenses anticipated for the fourth quarter due to the Red Sea crisis [4]. - The company is experiencing pressure from rising marketing expenditures, occupancy costs, and an unfavorable channel mix, contributing to operational inefficiencies [5]. Revised Outlook - The company has lowered its fiscal 2025 revenue growth expectations to a range of 7.1$1.85 and $2, compared to the earlier range of$2.42 to $2.70 [8]. Strategic Initiatives - The acquisition of rag & bone has strengthened Guess?'s multi-brand portfolio, with plans for expansion into high-potential markets such as Europe, the Middle East, and Canada [9]. - The wholesale business in the Americas has shown robust growth, with revenues surging 79% year over year in the third quarter, driven by internalizing the outerwear business [9]. Digital Strategy - The company is focusing on digital growth, evidenced by a 16% year-over-year increase in European e-commerce sales in the third quarter [10]. - A new loyalty program in Europe aims to enhance customer retention through cross-border point redemption and improved personalization efforts [10].