Sales Increases at Guess and Calvin Klein Offer Hope to Apparel Industry

NEW YORK, United States — Finally, some good news for clothing retailers.

Guess Inc. surged the most in a year on Thursday and PVH Holdings, the maker of Calvin Klein goods, the most since March after reporting quarterly results late Wednesday. Both saw improving sales trends overseas, indicating retailers have found new ways around a challenging environment in the US.

The enthusiastic reception from investors signals Wall Street’s eagerness for signs of improvement from the long-struggling apparel industry. Shoppers are skipping trips to the mall in favour of shopping online, and retailers have been slashing prices to compete for their attention. Still, surging trends in denim and intimates may help fuel a rebound for companies like Guess and Calvin Klein.

At the same time, teen retailers American Eagle Outfitters Inc., Abercrombie & Fitch Co. and Express Inc. have posted sales that topped analysts' expectations, indicating the sales slump may be hitting bottom for more of the industry, especially as shoppers prepare for back-to-school and the all-important holiday season.

“People have been painting the space with such broad strokes of death that it could have gone too far,” said Simeon Siegel, an analyst at Instinet LLC. While the companies didn’t post “phenomenal numbers,” he said “they were finally better than the fear of death.”

Guess soared as much as 21 percent to $15.05 in New York trading, while Abercrombie rose as much as 19 percent and PVH as much as 8.5 percent.

PVH said international revenue for the Tommy Hilfiger brand grew 9 percent last quarter, driven by strong sales in Europe and Asia. International sales at Calvin Klein surged 20 percent in the period, and PVH is opening additional flagship stores to introduce more customers to the chain's denim and intimates.

One benefit PVH and Guess have over some of their competitors is a smaller US store fleet. By focusing on overseas sales, brand wholesalers like PVH and retailers like Guess are also able to capture customers in markets that aren’t dominated by a few major players like the US, said Bridget Weishaar, an analyst at Morningstar. “That’s a more healthy place to be,” Weishaar said. “It just hasn’t been overbuilt.”

Guess’s revenue grew 19 percent in Europe and 17 percent in Asia last quarter, excluding currency fluctuations. The gains were fuelled partly by new stores, and online sales, the company said.

“We’re beginning to see the investments that we’ve made on our international business coming through and more than offsetting the softness in the Americas Retail business,” Guess chief financial officer Sandeep Reddy said on a call with analysts after the results.

For retailers like Abercrombie & Fitch and its mall-based teen competitors, who are still heavily reliant on fickle US shoppers, denim and intimate apparel are helping give a boost to domestic trends.

At Abercrombie, same-store sales — a key metric to gauge performance — fell 1 percent, less than the 2.1 percent drop seen by analysts, according to Consensus Metrix. Sales at its Hollister brand, which targets a younger audience, rose 5 percent, outpacing expectations for 2.9 percent growth. The company expects comparable sales unchanged or up slightly in the second half of the year.

Abercrombie’s results build on positive reports at American Eagle and Express, teen-focused clothing chains that also topped estimates after bottoms and intimates helped boost sales. Comparable sales rose 2 percent last quarter at American Eagle, the company said Wednesday. Analysts had projected a drop of 0.4 percent, according to Consensus Metrix. American Eagle shares gained as much as 5.9 percent Thursday.

Express, too, posted better-than-expected second-quarter profit Wednesday. Comparable sales declined 4 percent last quarter, better than the 5.2 percent decline projected.

Still, the industry isn’t out of the woods yet and needs to start showing same-store sales growth.

“The second quarter was better than feared across the mall, but I don’t think retailers are feeling emboldened,” Siegel at Instinet said.

By Lindsey Rupp; Editors: Nick Turner, Lisa Wolfson, Jonathan Roeder.