- Guess' Q4 fiscal 2013 earnings are tentatively expected to
be released on March 13.
- The European business is likely to remain soft due to a
weak macroeconomic environment though markets like Russia and
Germany have delivered promising results recently
- The North American business is improving, but the weak
holiday season might slow the recovery. Rapid growth in Asia is
likely to continue.
) is expected to release its Q4 fiscal 2013 earnings soon. The
European business, which is the most important segment for the
retailer, is likely to remain under pressure due to a weak economic
environment. However, some specific markets have performed well and
we'll keep an eye out for them in this quarter. The retailer's
North American results have improved over the last three quarters,
but the weak holiday season is likely to limit the recovery. The
most encouraging trend for Guess is the rapid growth in its Asian
business which is likely to continue.
See our complete analysis for Guess
Europe Will Continue To Remain Weak
Guess' revenues from Europe have decreased at an average rate of
11% during the first three quarters of fiscal 2013 due to sluggish
economic growth. As most of the retailer's operations are situated
in southern Europe, the weak macroeconomic situation in countries
such as Spain, Italy and Greece makes its business vulnerable. We
do not expect any significant improvement this quarter.
Nevertheless, it is worth noting that Guess' growth is
encouraging in some European markets such as Russia and Germany.
Last quarter, revenues from Russia registered more than 100%
growth and orders in the fourth quarter were about 50% higher.
Additionally, with more promotional activities in Q3 fiscal
2013, Spain and Italy generated positive comparable sales. The
revenue contribution from these markets is relatively small and
growth of Guess' overall European business will still be determined
by the broader state of the economy.
Weak Holiday Season Will Offset North American
Guess' North American operations have remained weak over the
last two quarters due to a decrease in the number of tourists and
poor performance from its accessories business. The effect was
prominent in Q2 when the retailer stated that its accessories were
missing fashion newness, which had a mitigating effect on its store
traffic. This was further impacted by Guess' strategy to
increase full-priced sell through and reduce the number of
markdowns and discounts.
However, despite the revenue decline, Guess showed some signs of
improvement in Q3. It reported an increase in the number of
tourists and better performance from the accessories business which
did well during the Black Friday weekend. The retailer also plans
to revamp its focus on product designs to elevate its brand image.
Moreover, improving women's apparel products was a major focus for
Guess in fiscal 2013.
The efforts paid off as women's apparel remained the strongest
category in Guess stores. The company has also shortened the
development cycle of women's apparel by 50%. As women's fashion
changes more frequently than men's, a shorter development cycle
will help it attune better to changing trends. Also, Guess has
worked on improving its product offerings in men's apparel and
accessories, which performed well during the third quarter. We
expect these efforts to have helped Guess' performance in the
fourth quarter as well.
However, the U.S. witnessed its weakest holiday season since the
recession due to Hurricane Sandy and the payroll tax increase. This
troubled a number of retailers and Guess was no different. We
believe that this might have hindered Guess' already slow recovery
and its Q4 results are likely to reflect that.
Rapid Growth In Asia Will Continue
During 2008-2011, Guess' revenues from Asia grew at an average
annual rate of 30%. The healthy growth continued during the first
three quarters of fiscal 2013 due to good results from China and
South Korea. China is the second largest apparel market in the
world with its huge population and rising disposable income.
McKinsey expects the total apparel sales in the region to reach
$200 billion by the end of 2014. Moreover, limited competition from
the U.S. counterparts such as
) and Abercrombie & Fitch (
) should work in Guess' favor. As a result, we expect the
retailer's growth to continue in the region.
Our price estimate for Guess stands at $28, implying a premium
of about 15% to the market price.
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