Guess (GES, Financial) had been sailing through troubled waters for quite some time, which continued in the recent quarter as well. Both revenue and earnings were down year over year and not only this; the management offered a bleak outlook for the fourth quarter. Led by its tepid performance the stock fell considerably in the past year and is currently trading near its 52-week low. But there is more to this story so let’s see in detail what lies ahead for this retailer.
How Guess is planning to make a comeback
The company reported disappointing sales in North America, which is the largest contributor to its total revenue. Interestingly, in spite of a boost from online sales the numbers were weak and the same situation prevailed in Europe and Asia. Although the management took various initiatives to offset this decline with its heavy discounting and increased promotional activities, it was not sufficient to counter the imbalance.
However, in the long run its efforts could pay off giving good return in the future. In North America, the company has built a true omni channel experience across its brick-and-mortar, online and mobile platform, which continues to create consistent shopping experience for consumers.
Talking about its product portfolio, men’s business had a decent performance compared to its women’s segment. The company is counting on Marciano, which performed quite well with positive double-digit growth last month and continues to gain momentum. For the days ahead Guess will continue to focus on women’s business, which will remain its top priority. In this direction it has realigned the women’s design team so that it will have the right product to offer in the spring season.
Why investors should tread cautiously
Going forward, a turnaround is still a distant dream. It will be a matter of time until we see some relief in the macroeconomic environment. And therefore the company is working hard to restructure its internal operations to make itself cost efficient. The company would take various measures in this direction and started with the integration of Guess and Marciano brand, which is expected to create synergies by leveraging common teams. Not only this, but it will also elevate the product assortment in both Guess group wise and its factory stores. These efforts will reduce the complexities across its brand portfolio and provide a common platform to support the business and leverage its cost structure further.
These initiatives will strengthen its bottom line in the long run even while it strives to boost its revenue. In the near term, Europe will remain as a headwind for the company as its final order book is down in the low single digits. A similar situation prevails in Asia and North America as well and revenue is expected to decline single and double digits respectively.
Conclusion
The company currently has a trailing P/E of 16.32, while its forward P/E stands at 17.23, which reflects the challenges it has to face in the near term. Moreover, the stock tanked to around a four-year low, with probably more room on the down side. However, if we consider its restructuring initiatives it will improve its profitability in the long run and when demand sets in the stocks will again start its rally. Therefore, in the light of these facts it seems prudent for investors to watch Guess from sidelines and wait for a turnaround.
