Rag & Bone may be exceeding expectations for parent Guess Inc., but the contemporary brand wasn’t enough to stave off losses in the recently ended quarter.
Guess Inc. is facing headwinds from several directions as the Los Angeles denim company looks to trim inefficiencies and woo back customers.
“One of the key challenges of our business over the last several years has been the decline in customer traffic into our stores and to our website,” Guess Inc. CEO Carlos Alberini told analysts Thursday. “Those trends have persisted in the U.S. and Asia for some time and we are now seeing similar patterns emerge in our European retail business.”
A big focus to reverse that trend will be marketing. The company plans on spending more, particularly around social media, to help “reignite our brand relevance and awareness,” Alberini said.
Nicolai Marciano, the son of Guess co-founder Paul Marciano, is leading the marketing initiative, which will involve more work with influencers, collaborations and an internal reorganization.
While the strategy in recent years had been to move away from heavy discounting and elevate prices, it led to a loss of some consumers.
“That initiative was anchored in building more quality into our products, including better fabrications… and better embellishment,” Alberini said. “While the program was successful in many ways, our recent analysis of pricing suggests that some of our legacy customers were not able to make that journey with us. It’s also reflective of what we have experienced with today’s consumer who tends to be quite sensitive to pricing.”
Guess will now seek to increase the number of opening price point items in its assortment.
Eyeing Everything
The company’s fleet of stores will also see improvements.
Alberini said stores will be given more autonomy to merchandise for the local customer. If all goes according to plan, an improvement in the physical store business alone could mean a $140 million boost, Alberini said.
Guess appears to be looking across the company in search of profitability.
“Certain categories that represented large opportunities in the past may no longer generate the returns necessary to justify the investments,” Alberini said. “Markets that were once profitable may no longer generate appropriate levels of income. We are looking at this across all different dimensions of our business to ensure that we are making and sustaining investments that deliver solid returns to our shareholders.”
Currently, 20 Guess stores are slated for closure this year in North America, with six of those doors already shuttered.
Greater China has been a drag on the overall business with no visibility on when it might turn profitable. As a result, Alberini said the company has conducted layoffs and shuttered stores in that market. Meanwhile, it is looking for a licensing partner to take over the China business.
Meanwhile, Guess Inc. has global headquarters in Los Angeles and Lugano, Switzerland that Alberini said have some redundancies. The CEO said the European footprint holds a “strong opportunity for consolidation and optimization.”
Guess Inc.’s Q1
Like most companies, tariffs have forced a rework of sourcing and supply chains. However, Guess estimates the impact of tariffs to be less than $10 million year-over-year, given 75 percent of its business is done outside of the U.S.
The remaining 25 percent prompted Guess and Rag & Bone’s sourcing teams to undergo “a massive effort” to move production out of China, Alberini said. The company also re-worked costs with vendors and pricing at retail.
Ultimately, Guess Inc. ended its fiscal first quarter, which ran through May 3, with revenue growth of 12 percent in constant currency to $648 million.
The company swung to a net loss of $32.9 million in the quarter compared to net income of $13 million in the year-ago period.
Even with the headwinds, Rag & Bone is expected to generate over $320 million in revenue this year, driven by more than 10 planned store openings and category expansion through licensing. It generated annual sales of $250 million before it was acquired by Guess last April.
Meanwhile, Guess Jeans is doing better than expected, although its successes have been largely earned through the European wholesale business.
“We wish that the North America business was bigger by now,” Alberini said of Guess Jeans, “but we think that at the end of the day, it’s like in every one of our businesses, product will win.”
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