Guess Who Pays a 5.2% Yield?

Advertisement

Talk about a surprise! I was astonished to discover that a clothing retailer not only pays a dividend, but has a 5.2% yield that appears sustainable, despite a lousy 2015 fiscal year.

Guess sign 630

I’m referring to Guess?, Inc (NYSE:GES), the 1,668-store chain that stretches across the globe and sells clothes and accessories. Considering that most retailers need their cash flow to expand their store base and fund inventory, I was surprised to discover that GES is so well-managed that it can support a high dividend. Not even recent struggles have required management to slice it down.

Let’s have a look at Guess’ earnings for the past year, which were reported after the close on Wednesday. The report speaks to how bad business has been — and makes it all the more impressive that the retailer can maintain this dividend.

Net income for GES was $94.6 million in FY15, a decrease of 42% compared to $162.5 million for FY14. Diluted EPS fell 42% to $1.11, compared to $1.91 in the prior year. Total revenue in FY15 fell 5.9% to $2.42 billion from $2.57 billion in FY14.

Breaking the numbers out, North America accounted for just over a billion dollars in GES revenue, a decrease of 4% from $1.08 billion in the prior year. GES comps fell an ugly 4.9%. Europe fared worse, with revenue down 8.7% to $825.1 million from $903.8 million Revenue in Asia decreased 4% to $281.1 million from $292.7 million.

Not surprisingly, margins got hit as well, down 390 basis points to 5.2% compared to 9.1%. This is what happens when you have a relative fixed cost structure but your sales go negative.

All in all, Guess earnings were terrible. Even worse, Guess earnings for this coming quarter aren’t expected to be better. In fact, GES thinks they are going to be awful.

Currency effects are expected to cause a revenue decline of 7%, operating margins are expected to be negative by 1%, and a loss of three to six cents per share is expected. For the full year, GES expects earnings between 75  cents and 95 cents per share, down 15-30% from this past year.

Despite all these declines, Guess generated $153 million in operating cash flow and $82.3 million in free cash flow. It ended the year with $483 million in cash and $205 million in long-term liabilities, giving it a net cash position of $278 million, or about $3 per share.

The market shrugged off  this negative news because results were better than analysts were expecting. The stock jumped 15% on Thursday to $19.35. If you back out the cash, GES trades at an effective price of $16.35, or about 20x this coming year’s EPS. That seems high given the fact that EPS is declining, but clearly the market thinks the dividend is sustainable.

I would agree, given the total dividend payout is about $76 million annually. As long as things don’t get materially worse after this year, the market seems to be not only willing to pay for that dividend, but doesn’t mind the lousy business dynamics. The stock is 33% off its high and that also seems to attract buyers.

All in all, I think there are worse places to put your money. Are there any other retailers paying any kind of dividend? Coach, Inc. (N YSE:COH) pays 3.3%, but it is also struggling. Michael Kors Holdings Limited (NYSE:KORS) doesn’t pay a dividend. Christopher & Banks Corporation (NYSE:CBK)? Don’t make me laugh. Macy’s, Inc. (M)? It pays 2% and is at least growing nominally, plus it is a more diversified operation.

Lawrence Meyers does not own any stocks mentioned.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/guess-ges-pays-5-2-yield/.

©2024 InvestorPlace Media, LLC