Despite its recent woes, the Guess name still means something. In the first two quarters of 2012, its operating profit from licensing was $47.4 million on $56 million in revenue for an operating margin of 85% — 400 basis points worse than in 2011. Historically, its operating margin for licensing in the first six months of the year has been anywhere between 82% and 89%.
Unless something happens to affect its level of licensing revenue, which is unlikely, it’s very hard for Guess to actually lose money on an operating basis, putting an effective floor price on its stock.
The closer GES moves to $20, the more attractive it becomes.
Action sports apparel and footwear retailer Zumiez (NASDAQ:ZUMZ) has had a topsy-turvy ride the past five years. Up and down like a yo-yo, its stock has lost 37% in the past three months and is down 29% through Nov. 26.
Much of the damage came on Oct. 31 when it revised its third-quarter earnings from a low of 42 cents down to 39 cents because of weak European revenues from Blue Tomato, its $75 million acquisition. Zumiez intends to use it as a stepping stone into the European market, which currently is suffering great economic upheaval. Since the company’s revision at the end of October, analysts have revised its Q4 earnings downward by 5 cents to 71 cents per share.
Several years ago, Zumiez had the opportunity to bid on Canadian action sports apparel and footwear retailer West 49, a company whose shares I owned. Zumiez contemplated topping the bid by Billabong (PINK:BLLAY) so it could quickly gain a national presence; however, it ultimately passed on West 49, opting to open its own stores one at a time. It was a wise choice. Billabong overpaid for the Canadian retailer, partly contributing to the Australian company’s demise in the past 24 months.
Once Zumiez gets its Austrian acquisition under control (Europe also has to come back), I see ZUMZ retesting $41.72, which it hit on June 20. In the meantime, any uncertainty in its third- and fourth-quarter reports will likely knock it down some more. First up is Q3 earnings, which Zumiez will report Thursday after the bell.
Still, the last time ZUMZ was this low for any extended period of time was for five months in 2010, its enterprise value is currently 6 times EBITDA, it has $3 per share in cash and virtually no debt.
Zumiez can’t get much cheaper than it already is.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.