Guess profit beats in quarter, 2008 view lowered

SAN FRANCISCO (Reuters) - Guess Inc (GES.N) reported a 10 percent rise in quarterly net income on Thursday, beating Wall Street estimates, but the apparel retailer and wholesaler cut its revenue and profit outlook for 2008, citing little visibility into the holiday season.

Although European sales were robust, fewer shoppers in its stores and promotions by rivals dampened the company's North American business and Chief Executive Paul Marciano called the retail environment "challenging."

Still, Marciano said the denim for which the company is known -- "our DNA," he called it -- was priced correctly in the market as shoppers have begun to shy away from premium, high- priced denim.

"We are very aware of the surroundings," Marciano said in a conference call with analysts. "We will adapt to be more aggressive or cautious when and where we need to be."

Needham & Co analyst Christine Chen said the lowered outlook did not overly trouble investors, who have seen the company outperform rivals this year in a difficult environment.

"This wasn't a slashing," she said. "Given their tendency to be overly conservative even when business is good, there is some hope ... they can attain it if things get worse and if things get better they can beat it."

Guess, which sells trendy clothing and accessories for women and men in its U.S. and international stores, said third- quarter net income rose to $64 million, or 69 cents per share, from $58.3 million, or 62 cents per share, a year earlier.

That beat analysts' average expectation of 63 cents per share, according to Reuters Estimates.

Sales rose 12.5 percent in the quarter to $527.9 million, helped by growth in all segments.

Its retail stores saw 12 percent sales growth even though same-store sales dropped 0.8 percent. Wholesale sales rose 2.4 percent, while European revenue rose 17 percent and licensing revenue rose 24.7 percent.

But operating margins fell, due to negative same-store sales growth in North America -- where the company has 422 stores -- and higher costs in Europe from infrastructure investments.

Guess said its denim, which represents nearly a third of its North American apparel business, was priced correctly, with premium jeans selling for around $150 on average and lower- priced styles at around $98.

"I strongly believe that the world of denim has changed dramatically during the last few months. I think reality is knocking on the door," Marciano said, adding he had seen a slowdown in premium denim priced above $180 during recent trips to Europe and Asia.

SLOWER EXPANSION

Guess' results came on the same day that U.S. retailers posted November same-store sales, a key gauge of retail performance. Overall, apparel chains posted a 10.5 percent drop, according to Thomson Reuters Estimates.

For fiscal 2008, Los Angeles-based Guess lowered its outlook, citing uncertainty over holiday season spending trends.

Earnings are now expected to range between $2.27 to $2.32 per share from an earlier view given in September of $2.47 to $2.53.

Revenue is now expected at $2.03 billion to $2.07 billion, down from an earlier outlook of $2.06 billion to $2.11 billion.

Wall Street, on average, had been expecting 2008 earnings of $2.42 on revenue of $2.08 billion, according to Reuters Estimates.

The company said it had slowed purchasing, canceling some orders in order to keep inventory lean for 2009.

"We have been able to really buy later ... which we think is the right approach for this type of economy and market conditions," said Chief Operating Officer Carlos Alberini.

Guess, which has 84 company-owned retail stores outside of North America and has been expanding, said its store growth in 2009 would be "significantly slower" than in 2008, together with a decline in capital expenditures.

Guess shares rose 1.7 percent to $14.20 in extended trading from their close of $13.96 on the New York Stock Exchange. The shares, which hit a year low in late November, are down 70 percent since a year ago.

(Reporting by Alexandria Sage; Editing by Bernard Orr and Andre Grenon)