Investment in improving the customer experience and in new products could improve Guess? (GES, Financial)’s competitive advantage. It is seeking to introduce new products that appeal to a wider range of consumers, while offering greater personalization to increase customer engagement.
With a focus on becoming more efficient, as well as growing its presence in international markets, the company appears to offer good value for money.
Having declined 38% in the last year versus a fall of 4% for the S&P 500, the stock could deliver a successful recovery.
Investing for growth
The company is investing in new products as it seeks to offer a wider assortment of items in stores and online. As part of this, it is implementing plans to increase capacity for its denim products in 219 stores. It is also set to introduce additional fashion styles to provide greater variety to customers, aiming to use analytics and technology in order to improve speed-to-market. Having reorganized its design team into two parts, with one serving North America and the other Europe, the business is aiming to differentiate itself versus peers through introducing designs that may be more appealing to local customers.
Guess? is seeking to grow the size of its store estate in international markets. For example, it currently has stores in only 34 of the largest 60 cities in China. It also has the potential to grow its e-commerce business in China, which is ranked among the top 50 international brands doing business with Alibaba via Tmall last year. As part of its international expansion, it is in the process of reorganizing its infrastructure. This is focused on the use of technology and data analytics to improve productivity and enhance its competitive position on a global basis.
Customer focus
Guess? is aiming to improve the customer experience through using data such as shopping history and behavioral shopping patterns. It currently has a range of customer files across major markets that provide insights into the customer journey both in-store and online. Through leveraging this data, it is aiming to introduce personalized marketing that increases customer engagement.
The company is conducting in-store tests to increase the presence of key products that are developed specifically for Generation-Z customers. It believes that Gen-Z customers offer its most significant growth opportunity, as they shop each collection launch and usually purchasing items at full price. With the number of Gen-Z shoppers being 50% larger than Millennials, the company is seeking to offer an in-store and digital experience that appeals to a broader range of consumers.
Threats
The company’s performance in Asia in the most recent quarter has been disappointing. It has seen lower traffic in its stores in the region, as well as reduced visitor numbers to its online offering. Its performance in the U.S. may also come under pressure in the near term as a result of the potential for higher tariffs on imports from Mexico and China. At a time when U.S. retail sales are already weak, having grown by just over 1% in the last nine months, additional tariffs across the apparel industry could put disposable incomes under greater pressure.
In response to the threat of higher tariffs on imported goods, Guess? is taking action such as cost sharing with suppliers, shifting sourcing to other countries of origin and passing higher costs on to consumers where it believes there is scope to do so. Additionally, the company is taking steps to ensure that inventories are planned and managed in an increasingly disciplined manner in order to improve efficiency. It has also engaged a consulting firm to assess its overall cost structure, with a view to identifying opportunities for cost reductions in the U.S. and Europe.
Outlook
In the next fiscal year, Guess? is forecast to post a rise in earnings per share of 22%. Given that it trades on a forward price-earnings ratio of 12.1, it seems to offer a wide margin of safety.
The investment it is making to improve the customer experience, as well as broaden its range of products to appeal to a wider customer demographic, could enhance its financial outlook.
With further investment in international markets, as well as a focus on increasing productivity and efficiency, the company’s competitive position may improve.
Having underperformed the S&P 500 by 42% in the last year, the stock could offer investment appeal.
Disclosure: the author has no position in any stocks mentioned.
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