Branded apparel retailer Guess (GES, Financial) disclosed lower-than-expected results for the second quarter due to a weak retail environment in North America, slow store traffic, and promotional activity. However, its results were more than offset by the tremendous growth of 48% in its e-commerce business that continues to gain momentum, compensating for the slow traffic in stores.
Results and guidance
The shoes, clothing and accessory retailer posted revenue of $608.6 million, a decrease of about 4.8% year over year. Its net income for the second quarter plunged 50% to $22 million year over year. However, the earnings came in line with its guidance of $0.26 per share for the quarter.
Looking ahead, the company released a soft guidance for revenue and earnings. It now expects revenue in the range of $590-600 million and earnings to fall in between $0.15 per share and $0.20 per share for the third quarter. The consensus estimated earnings of $0.37 per share on the revenue of $613 million. Guess has also lowered its outlook for the full year, and earnings are expected to be in the range of $1.05 per share to $1.20 per share. This soft guidance followed by soft results for the second quarter has led the stock to dip approximately 7.96% to $23.60 in afterhours trading.
Long-term prospects
Guess, however, continues to display long-term growth prospects in its business plan that focuses on consolidating the business in North America, and optimization of its real estate segment. The company plans to shut down approximately 50 stores that are delivering weaker than expected results due to changing surroundings in the retail background which now looks to be shifting to e-commerce platform.
Guess anticipates these stores will by closed by the end of 2016. In addition, the company remains well on track to remodel 50% of its North American stores within a time frame of about three and a half years. These strategic changes will certainly leverage its real estate profile to be more productive and fuel growth for its business going forward.
Conclusion
Guess is currently trading at the trailing P/E of 15.53 and forward P/E of 14.74 that demonstrates slow but steady growth for the stock in the coming years. However, its PEG ratio does not seem to be complementing its growth going forward, as it remains quite high at 5.09 for the next five years. Also, its profit and operating profit remain low with 5.56% and 8.94% yields. The company has an operating cash flow of $295.97 million and free cash flow of $209.23 million which can effectively cover its total debt of $9.26 million.
In addition, analysts have forecasted CAGR of 3.45% quite below in comparison to the average industry CAGR of 14.55% for the next five years, which suggest slow growth for the stock in the future. However, analysts expect next year's CAGR of 19.20% which is higher than the average industry CAGR of 18.50%. Hence the stock looks to benefit the investors in the short term.
