Guess?, Inc. (NYSE:GES) is like many other retailers, seeing a collapse of its U.S. business as shoppers abandon malls for warehouse stores and online shopping. But GES stock is up today because Europe and Asia are more than picking up the slack.
The company yesterday said it earned $1.04 million, a penny a share, on revenues of $772.7 million for its fourth quarter, which included Christmas. This handily beat the analyst consensus of a loss of 15 cents per share. GES stock popped almost 10% in the pre-market, extending the 3.6% gain from March 21 trading.
Still, the stock’s opening price this morning, $15.52 per share, is still well below its $19.39 year high, which came just before co-founder Paul Marciano left his day-to-day duties on Feb. 2 following accusations of improprieties with model Kate Upton.
Now a Global Brand
A little more than a month later, what investors see today is a completely different company, under CEO Amigo Victor Herrera and CFO Sandeep Reddy.
As the two explained in their earnings call, Guess continues to grow both its store count and sales in Europe and Asia. Endorsements from Jennifer Lopez are helping pump up “Americas” sales, they said.
The pair hope that the next fiscal year will look better due to lower comparable sales figures in the U.S., with the eking out a top-line gain in the low single digits.
The look the company is selling as it grows stronger in international markets is different from what you may expect from Guess — logo t-shirts, ruffles, and stretched denim. For the U.S. especially, Reddy said, the company is emphasizing a “digital first” program, selling online as malls and other outlets continue to lost shopper favor.
Future is a Guess
What analysts like Dana Telsey of the Telsey Group wanted to know about was gross margins, which came in at 37.2% for the quarter, a big improvement. Reddy said the company’s high initial mark-ups (IMUs) are being maintained, and that the company should benefit from lower rents in the U.S. as its threats to close underperforming stores are being taken seriously by landlords.
Upton, 25, who is now married to Houston Astros pitcher Justin Verlander, accused Marciano of groping and harassing her when she was working for Guess at age 18. She has since become a supporter of the #MeToo movement.
Marciano, 66, who co-founded Guess with his three brothers in 1981, was also the company’s creative director and responsible for the iconic look of the company’s black-and-white advertisements. It was his brother Georges Marciano who initially created the company’s designs. Georges sold out to his brothers in 1993, leading to the decision to go public. Paul stepped down as CEO in favor of Herrera in 2015 and was the last of the brothers to have an active role at the company.
The Bottom Line
Investors today must measure uncertainty at the top against strong results achieved by Herrera’s team in their international expansion. The tension has made Guess a volatile stock, fun for traders, and one that longer-term investors have to look at on a day-by-day basis.
The current consensus among analysts is that the stock is worth $17 a share, with a 12-month target of $21 per share, and they have an average hold rating on the stock. Since this is a fashion company, however, I’d have to find out who is designing the clothes and setting the creative direction before I’d suggest anyone buying it for the long haul.
If they could find a genius designer in their late 20s to take the brand in a new direction, on the other hand, I might be interested. Especially if the designer is female.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
