Guess (GES) Rallies on Healthy Guidance for Fiscal 2014

Shares of apparel retailer Guess (GES) rallied last week after the Los Angeles-based retailer reported better-than-expected profit for its first quarter. Guess earned an adjusted $0.14 per share, a steep slide from the $0.30 per share it earned in the prior year quarter, but it still topped Wall Street estimates for $0.08 per share. Sales slid 5.2% year-on-year to $548.9 million, missing the consensus estimate of $548.9 million by a hair.

Considering the mediocre top and bottom line growth from the previous year, was the stock's sudden 8% post earnings jump justified? Daily Chart
Asia, Guess' smallest market, was again its strongest region during the first quarter. Sales across the region rose 10%. Meanwhile, sales in North America slumped 5% as European sales declined 13%. To top off those bleak numbers, same-store sales in North America, its largest market, plunged 9.8%, which draws unfavorable comparisons to another struggling retailer, Abercrombie & Fitch (ANF). Operating margin dropped from 6.8% to 2.5%, which the company claims "primarily reflects the impact of negative same store sales on the company's fixed cost structure, lower sales in our European wholesale business and more markdowns in our North American retail business, partially offset by lower corporate expenses." Looking ahead, Guess expects to earn $0.34 to $0.38 per share during the second quarter on revenue between $620 million and $635 million. Wall Street expects Guess to earn $0.36 per share on revenue of $618 million. It was this rosy guidance that caused shares to rally last week. However, weak sales in the U.S. and Canada, where it currently operates 511 retail stores, remains a major challenge, due to macro and micro headwinds. Fast moving, lower-priced apparel retailers such as Forever 21 and H&M have shifted the balance of power in the retail apparel market, which has made it tough for older retailer such as Guess to remain relevant to a younger crowd. CEO Paul Marciano acknowledged these challenges, stating, "While we are encouraged by our start to fiscal 2014, the near term outlook for consumer spending remains soft and we are planning our business accordingly. Southern Europe continues to be our main concern going forward." During the quarter, Marciano hired a new head of design, Hillary Super, the former senior merchant of American Eagle Outfitters (AEO) and Gap (GPS). He also brought in a former Limited Brands Victoria's Secret executive to lead its retail merchandising efforts in North America. In addition, Marciano implemented further cost-cutting initiatives during the quarter by streamlining Guess' operational structure. This caused a restructuring charge of $2.3 million, or $0.02 per share, for the quarter, which was excluded from its adjusted earnings. Guess currently trades with a forward P/E of 14.9 with a 5-year PEG ratio of 1.96, signifying that although the stock is fundamentally undervalued, it looks to face more sluggish growth in the next few years. However, the stock pays a decent 2.7% quarterly dividend. Other News About GES Guess Pops Following Earnings Beat Guess unexpectedly rallies following lackluster earnings. Guess? Earnings Fall 56% in Q1 Guess still fails to impress. Other Stocks in the News The Two Sides of the GMO Debate Is the public too hard on Monsanto? Investing in China's Growing Appetite for Meat and Seafood How should investors capitalize on China's growing appetite? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Jun 6, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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