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Guess Does Not Look Like a Good Buy
Posted by: kcpl (IP Logged)
Date: April 17, 2014 04:44PM

Most of the apparel retailers have experienced a tough time due to a prevalence of stiff competition and restrained consumer spending. On the contrary, according to an NRF report, it has been noticed that these apparel retailers have advanced in accelerating the employment in the retail sector, while the clothing industry or clothing store has experienced a reduction of 12,500 positions in September 2013. This indicates concerns in the apparel retail industry.

Amid such a market environment, along with bad weather conditions, Guess (GES), known for its Hipster jeans, is also feeling the heat and therefore reported weak results like most of the other rivals. Also, we will take a look at American Eagle (AEO) and Buckle (BKE).

Weak Performance

As a result, Guess’ revenue was seen declining across all its segments in the major markets. Guess posted revenue of $613.5 million that was down by 2.4%. In constant currency terms, its revenue declined to 4.1%. The decline in revenue was primarily due to weak comp sales, lower traffic and low foot traffic across different markets.

Consequently, its net income was also weak. In addition, cost of sales expanded to 62.8% from 60.6%. This led to a decrease in its net income. However, investor’s can feel good as the earnings were above the management‘s own guidance and surpassed analysts’ expectation.

The Road Forward

Looking ahead, Guess is continuously working to build a strong omni-channel since last year and it established e-commerce platforms along with its stores in the U.S. and Canada. The company had initiated these strategic moves in the previous quarter and expects to accelerate sales growth in this category. The company has added more than 100 stores that are a part of in-store fulfillment.

In addition, sales of jeans are rising continuously and are the highest in North America, Australia, and Western Europe. Guess can capitalize on the opportunity as the global market for denim jeans is forecasted to touch $56 billion by the end of 2018. Moreover, 74% of American consumers enjoy or love wearing denim.

Is American Eagle Better Off

American Eagle, on the other side, has also witnessed a decline of 5% in comparable-store sales versus a 10% gain in the same quarter a year ago. The decline in comp store sales was also affected by the strategic investment the company had made in Omni-Channel initiatives that resulted in 17% growth. Its consolidated sales were down 5.8% to $857.3 million.

American Eagle is making progress globally by reducing reliance on the domestic market. In addition, the company had acquired three new licensing deals in Central, South America, and Thailand for launching multiple stores in these regions. But, it expects a mid-single digit decline in its comp-store sales due to weak macro-economic conditions.

Buckle Is Also Giving Competition

Guess, meanwhile, faces a tough competition from its peer Buckle with its Big Star, Miss Me, Rock Revival, Silver Jeans and Buffalo Jeans brands as these fall in the hipster-jeans category of Guess. Besides, Buckle has an edge over Guess due to pricing, as most of the branded merchandise Buckle offers for sale is exclusive and expensive. Furthermore, Buckle also strategically plans to diversify its product portfolio to include activewear and footwear products, hence providing tough competition to Guess.

Conclusion

Guess is seeing difficulty in growing its business as it is under siege from all sides. So, investors should stay away from the company for the time being. If there are signs of improvement in the future, Guess could become a better investment.



Stocks Discussed: GES, AEO, BKE,
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