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Why Investors Should Avoid Guess for Now

August 29, 2014 | About:
jaggom

jaggom

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Branded apparel retailer Guess (GES) released disappointing results for the second quarter. The company’s results were weak and fell short of expectations. The shares of the retailer plunged soon after it posted a weak guidance for the third quarter. This happened as the investors didn’t receive the results positively. Management is thinking that the soft environment in North America – as well as heavy promotional activities – is a reason for this downfall. Now, it will be interesting to see how Guess manages to keep its spirits high in this unfavorable environment.

Results and beyond

Guess posted revenue of $608 million, which was disappointing as it was way less than $639 million as compared to a year ago. The top line failed to meet analysts’ estimates of $617 million. Guess posted EPS of $0.26 per share, which was in line with consensus estimates. On the other hand, Guess did see a good 50% improvement in the net income as compared to last year’s same quarter.

Guess also saw some positives. The shoes, clothing and accessory retailer is making efforts to make a comeback. The company was upset with soft consumer behavior and a weak market in North America. But it is now on track to attaining profitability. For this, Guess is making advances toward the consolidation of its business in North America. It is also checking its expenses.

Strategies ahead

Moving forward, Guess is mainly focusing on strengthening its product portfolio. It is focused on providing best in class products in its entire category to gain more customer attention. It is counting on the men’s segment that is growing, and the company saw good traction from the segment in the second quarter. The men’s knit top was the best seller, and Guess expects it to address the youth category in an impressive way. But Guess is worried about the women's category, as it is expecting the women's apparel and accessory segment to be weak in the future. However, Guess is engaged in making the women's design a priority.

On the international front, in Europe, Guess is content with its performance. But, the company is now accelerating its promotional activities in Europe to add more steam to the existing business. With such moves, Guess is expecting better customer engagement with the brand. Shifting the spotlight to Asia, Guess has mixed expectations from different countries in Asia. In China and South Korea, Guess is expecting soft sales due to weaker economies and soft consumer demand in these regions. But Guess is confident of better results from Hong Kong and Macau as it is continuously delivering positive comp sales since last quarter.

Guess is also anticipating a weak performance from the denim category. The company is not much concerned about it; it thinks it to be a short-term weakness as many of its peers are experiencing the same weakness in their business. Guess is also upset with the sales trend, as it is still under pressure and is showing no concrete signs of getting back.

The company is anticipating this weakness to affect its third-quarter results as well. Being on the defensive side, Guess has released a soft guidance for the third quarter. For the third quarter, Guess is expecting the top line to fall in a range between $590 million and $600 million. This also missed analysts’ estimates as they were expecting revenue to be around $613 million.

Conclusion

Guess is facing a tough time. So, investors should consider staying away from the stock until and unless Guess shows signs of improvement.


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