Guess?, Inc. Stock Still May Be Worth a Shot, Here’s Why

After plunging 15% back on Nov. 22, it’s reasonably safe to surmise that the third-quarter numbers from Guess?, Inc. (NYSE:GES) weren’t quite what shareholders were expecting. Indeed, GES stock had rallied nearly 90% between May’s low and the Tuesday before it unveiled its Q3 earnings report, saying investors felt the apparel maker and retailer was back on the right track until a week and a half ago.

ges stock
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Thing is, despite the pullback, Guess stock is still a compelling prospect. In fact, GES stock is a compelling prospect specifically because of the pullback, even though much of that loss was reclaimed this week on news that actress/singer Jennifer Lopez would be featured in the company’s newest marketing campaign.

You just have to take a step back and look at the bigger-picture (and past the short-term volatility) to see it.

GES Stock Is On the Right Track

The graphic below tells the tale.

While last quarter’s results were solid, the company’s outlook and history makes it clear that Q3’s relative victory may just be one chapter in a much bigger turnaround story. Indeed, Guess? has now logged five straight quarters of revenue growth, and three quarters of earnings growth per share of GES stock. More of the same kind of progress is projected for the company as well.

Click to Enlarge

As for what Guess?, is doing now that it wasn’t doing before to drive sales growth, it’s not entirely clear. There are some key things very likely working in the company’s favor now, however, that aren’t going away anytime soon.

One of the more ubiquitous-yet-ethereal tailwinds is the outright meltdown of rival retailers, and department stores like Macy’s Inc (NYSE:M) in particular.

It sounds counterintuitive at first. If shoppers are shunning stores and opting to buy experiences rather than goods, Guess? is arguably on the wrong side of the table. Consumers are still buying clothes, though, and with fewer and fewer choices, the survivors are garnering displaced traffic.

There’s also the mostly-underappreciated possibility that consumers really are feeling better about the future, enough to prod them into making higher-end purchases they may not have been willing to make in recent years.

Earlier this week the Conference Board revealed consumer confidence levels had reached a 17-year high. Underscoring this notion is news from rival retailers and apparel brands that suggest a similar trend.

Even a struggling Abercrombie & Fitch Co. (NYSE:ANF) dropped hints of growth with its third quarter numbers. Ditto for Urban Outfitters, Inc. (NASDAQ:URBN).

Of course, Guess? has continued to update its look and its stores in the meantime as well, optimizing both to be as competitive as possible in a fiercely competitive market.

In an of themselves these factors may not be enough to change the company’s future for the better. In sum, however, it’s a clue that the retail pendulum may be about to swing in a more positive direction again.

Bottom Line for GES Stock

All that being said, while the company is doing all the right things and appears to be on a growth track again, the GES stock dividend could be in trouble if things don’t change even more dramatically than they have of late.

The numbers: Over the course of the past four quarters the company has paid out 90 cents worth of dividends but only earned 11 cents per share of GES stock. Its cash balance has been whittled down, and debt has inched higher, to fund the payout.

It’s obviously not a long-term solution, yet the company is miles away from earnings its way out of the trouble its generous yield could cause. The current dividend yield of 5.4% could buckle soon, and all investors would be wise to remain well aware of that risk.

From a trajectory point of view, however, Guess? is offering more reason for hope than it has in a long, long while. It’s still in interesting prospect, even if you have to keep it on a short leash, particularly now that it’s rallied back 12% from its post-earnings-report low.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

Article printed from InvestorPlace Media,

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