Guess Stock Struggles Amid Mixed Earnings and Market Performance

[Note: Guess’ FY’24 ended on Feb 3, 2024]

Guess Stock (NYSE: GES), known for its global apparel and accessories retailing, has suffered a notable decline of 40% year-to-date, closing around $14 on December 30. This decline stands out when compared to the positive performance of the S&P 500 index. In contrast, competitor Gap (NYSE: GAP) saw an increase of 13% over the same timeframe. What is causing this downturn for Guess Stock?

Mixed Regional Performance and Lowered Expectations

During its third-quarter earnings call, Guess reported varying performance across regions. Strength was observed in European markets and Americas wholesale, which were offset by downturns in North American and Asian retail segments. Although European sales were strong, making up 50% of total revenues, the company faced margin pressures from high inventory levels and needed markdowns. Consequently, operating margins and earnings took a hit, further compounded by management’s downward revisions of future guidance, negatively affecting the share price.

Revised Revenue and EPS Guidance

Guess has adjusted its full-year revenue growth expectations to 7-8%, down from an earlier forecast of 9.5% to 11.0%. The company also lowered its adjusted EPS forecast to $1.85-$2.00, from a prior estimate of $2.42 to $2.70. For GAAP EPS, projections are now between $0.70 and $0.82. These results reflect the costs associated with increased marketing efforts for international expansion and the integration of the rag & bone brand. For fiscal year 2025, Guess anticipates GAAP and adjusted operating margins between 6.1% to 6.4% and 6.2% to 6.5%, respectively.

Sales Growth Countered by Declining Profitability

In Q3, Guess sales grew by 13% year-over-year to approximately $739 million, largely due to the addition of the Rag & Bone brand. The American Wholesale segment saw revenues jump 79% year-over-year to $99 million. Americas Retail grew by 12% to $172 million, Europe increased by 7% to $368 million, and Asia was flat at $65 million. However, adjusted earnings dropped 31% year-over-year, declining to 34 cents per share. In addition, gross margins shrank by 110 basis points to 43.6%, while the adjusted operating margin fell by 310 basis points to 5.8%, driven by higher SG&A expenses and reduced gross margins.

Comparative Stock Performance Over Time

Historically, Guess stock has shown poor performance. Returns were 7% in 2021, a decline of 9% in 2022, and an increase of 18% in 2023. On the other hand, the Trefis High Quality (HQ) Portfolio, which holds 30 stocks, has consistently outperformed the S&P 500 throughout the same period, reflecting better returns with lower risk and less volatility.

Forecasting Future Growth

Looking ahead, we anticipate Guess revenues to reach $3 billion for fiscal year 2025, representing a 9% year-over-year increase. Adjusting for these revenue and EPS changes, we estimate Guess stock to be valued at $18 per share, based on a projected EPS of $1.86 and a 9.8x price-to-earnings multiple for 2025. At the end of December, the stock appears to be undervalued.

Peer Comparison Analysis

To better understand Guess’ position within its industry, it is useful to analyze how its peers are faring on critical financial metrics. Insights and comparisons across various companies can be found in the Peer Comparisons section.

[1] Returns as of 12/30/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.