Guess Inc. (GES, Financial) offers good value for the money despite its 14% stock price rise in the past year.
The clothing brand is investing in new technology and has plans to address the difficulties it experienced in Asia in its fiscal 2019 third quarter.
Technology investment
The company is investing in its website to improve its online sales growth potential. For example, it is upgrading its website to make it easier for its customers to purchase products and to navigate across its various departments. Guess expects this to lead to a higher proportion of visitors to its website purchasing its products. It may also increase the average order value for each of its customers.
The business is investing in increasing the amount of data that it holds about its customers. It intends to use this additional data to provide greater personalization to its customers in its marketing. This could boost its sales performance among its existing customers and lead to greater levels of customer loyalty that provide the retailer with a wider economic moat.
Efficiency
Guess is making changes to its labor scheduling process to more closely align its staffing levels with its changing levels of customer demand. This could mean that the company has more staff present to serve customers during busier periods, which may improve the shopping experiences of its customers. It may also reduce the company’s labor costs during quieter periods at a time when rising minimum wages in a variety of regions are causing higher costs for retailers.
In addition, the business plans to combine its local departments in areas such as IT, product development and distribution to create global departments. This could improve the company’s efficiency and reduce its costs due to there being less duplication across its departments in different geographies.
The business is aiming to renegotiate the rent it pays at many of its store locations. This could reduce its costs and improve its margins. It also plans to produce a single factory outlet line of clothing across North America and Europe, which would replace the two different factory outlet lines that it currently sells. This could mean that Guess reduces its duplicate costs, while the strategy may not require the business to make significant upfront investment due to its two lines being similar in their styles and colors.
Potential challenges
The company’s financial performance in its fiscal 2019 third quarter was mixed. It experienced challenges in Asia, where it reported a 5% decline in its revenue. Its stores across Asia reported a fall in the number of customers visiting them during the quarter when compared to the same period of the previous year. In addition, its operating margin in Asia declined 5.2 percentage points, as Guess sought to offset its reduced customer numbers with lower prices. This trend could continue in the short run, and may act as a drag on the company’s financial performance.
In response, the company plans to sell products in Asia that cater more closely to local trends and styles. This could make its products more competitive and desirable compared to those of its sector peers.
Additionally, it will update its products more frequently to ensure that its customers have more reason to visit its stores on a regular basis. The retailer will invest in online marketing to a greater extent in Asia than it has done in the past. This will include the use of social media influencers and live streaming, which could be a better means of appealing to its target customers.
Outlook
Market analysts forecast that the company will deliver a 27% rise in its earnings per share in fiscal 2021. Its forward price-earnings ratio of 16.4 suggests that it offers growth potential in the upcoming years.
Disclosure: the author has no position in any stocks mentioned.
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