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
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Published on Jun 6, 2013
By Leo Sun