Guess? Falls Shy, Revs Modestly Up - Analyst Blog

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Guess? Inc.' s ( GES ) third quarter 2012 adjusted earnings per share ( EPS ) lagged behind the Zacks Consensus Estimate by 2 cents and stood at 71 cents. It also missed the year-ago earnings of 75 cents a share by 5.3%.

Management held the current global economic headwinds and the dilapidating disposable income of the consumers responsible for the not-so-good results of the company in the third quarter.

The Way Forward

The company's continuing strong business momentum, even in face of the challenging weak consumer and category growth environment and inflating input cost, boosts the confidence of a better performance going forward. Management also feels new strategic initiatives like promoting its brands in North America will show its colors in the coming quarter. Additionally, management derives confidence from unexplored markets in Europe and momentum in Asia.

Based on the results posted in the quarter, the company estimates the fourth quarter diluted earnings per share to be in the range of $1.03 to $1.09. For the fiscal 2012, the company projects earnings in the range of $3.04 to $3.10 a share and GAAP diluted earnings per share between $2.85 and $2.91.

Revenues and Margins

Revenues in the quarter climbed up 4.7% year over year to $642.8 million. In constant dollar terms, net revenue increased 1.9% from the previous year.

Retail stores in North American segment generated revenue of $265.6 million, up 4.7% from the year-ago period. As of third quarter 2012, Guess? directly operated 495 retail stores in the United States and Canada, versus 473 stores that it operated a year earlier. However, comparable store sales came down 4.1% from the previous year, mainly on account of the challenging macro-economic conditions and diminishing real income of consumers.

Revenues grew in both Europe and Asia, and the Asian markets led the race charge with 31.1% increase in revenue. It was followed by an increase of 29.9% in the European markets. However, North American Wholesale segment posted a decline of 0.9% to $43.9 million in the third quarter of fiscal 2012, from $44.3 million in the prior-year period.

Operating income grew 4.6% to $97.0 million, reflecting favorable currency translation effect.

Operating income margin remained flat at 15.1% compared with the prior-year quarter. Product margin climbed up owing to lower markdown in North American Retail.

As on October 29, 2011, Guess? had $426.72 million of cash and cash equivalents compared with $427.03 million in the prior-year quarter. Long-term liabilities amounted to $174.5 million with stockholder's equity of $1,861.20 million in the quarter.

Operating activities provided $149.94 million of cash, of which $103.77 million was used in investing activities.

Conclusion

We are encouraged by the company's focus on cost-control efforts, balance sheet management, and growth opportunities and global expansion.

However, commodity-price inflation, global recession and competition in the highly fragmented apparel industry coupled with stiff competition from rivals like Abercrombie & Fitch Co. ( ANF ) and Gap Inc. ( GAP ) are matters of concern.

Currently, Guess? holds a Zacks #3 Rank. On a long-term basis, we maintain a 'Neutral' rating on the stock with a short-term 'Hold' rating.


 
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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ANF , EPS , GES

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