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Suravi Thacker
Suravi Thacker
Articles (157) 

Is Guess The Right Choice For Your Portfolio?

June 20, 2014 | About:

Specialty apparel retailers witnessed a weak holiday season wherein it had a host of hurdles to overcome. Not only did the severe winter weather hampered traffic and sales at its stores, but also factors such as stiff competition, heavy discounts and a highly promotional environment took its toll. Even consumer spending has been low, leading to lower sales.

Nonetheless, retailers such as Guess? (NYSE:GES) have managed to register a decent quarter where its numbers met analysts’ expectations. Although the numbers were not so attractive, the analysts weren’t expecting much because of the prevailing problems. Let us look at this closely.

By the numbers

Although revenue managed to meet the expectation, it fell 4.8% to $522.5 million. The top line was affected by lower store traffic as customers preferred to stay at home and spent less on luxury products such as specialty apparels. Both Wholesale as well as the retail segment sales witnessed declines. Wholesale revenue dropped 10.3% to $39 million.

The retail segment, which includes e-commerce business, decreased 4.2% to $228 million. Same store sales too fell 3.8%. However, the e-commerce segment was a bright spot with almost 50% surge in revenue. Hence, online business has been growing for the company. Moreover, the chilled weather made people order goods online through Guess’ website.

Geographically, all regions experienced declining revenue. Not only did North America experiences drop in sales, but so did Europe and Asia. Sales in the European region decreased 3.8% to $159.2 million. This was mainly because of turmoil in Russia and Ukraine, which led to lower demand. Asia registered a decrease of 1.4% in revenue mainly because of lower consumer spending in China.

Moving down to the bottom line, the company is doing a good job of managing its costs. It has been streamlining its business and planning to build its brand image in the underdeveloped markets. However, because of lower top line, the company posted a loss of $0.03 per share. This was better than the estimate of a loss of $0.06 per share. In fact, margins also shrunk as heavy discounting took its toll.

What the future has in store?

Investors’ hopes were shattered when the company declared its outlook for the year. It reduced its previously announced guidance, enabling its share price to fall. It now expects revenue to be in the range of $2.53 billion and $2.57 billion. Adjusted earnings are now estimated to be in between $1.40 per share and $1.60 per share.

However, the retailer is making efforts to reduce its costs and enhance its bottom line. The measures should start bearing fruits. Also, it plans to focus on underdeveloped markets and strengthen its presence there. This should prove to be helpful in boosting revenue.

Another primary segment to be looked into is its online business. Guess plans to expand its e-commerce business since it has become quite popular with customers. These efforts along with the spring season coming in should help in growing the business.

Conclusive thoughts

Overcoming the hurdles of specialty retail industry is a difficult thing to do and Guess is trying to do so from quite some time. It will be interesting to see how the company’s efforts will fare in the future. However, the current situation is not so attractive. The retailer’s results were a lackluster one. Its future too looks dismal. Hence, it is better to stay away from this company till there are signs of a turnaround.

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