Fiscal 2013 has been weak for
) so far as the retailer reported revenue declines for the first
three quarters of the year. The declines were driven by tough
economic conditions in Europe and lower store traffic in North
America. The weakness in Guess' North American operations can be
attributed to low promotional activities and a lack of fashion
newness in our view.
As the economic environment in Europe continues to remain
unfavorable, it makes sense for Guess to focus on improving its
business in North America. The retailer is taking some steps to
improve its brand strength and responsiveness to changing
fashion trends in the region. It has improved its product offerings
and the results have been encouraging. Overall, we believe that
Guess' North American operations will play a crucial role in
driving the stock closer to our $28 price estimate as the U.S.
still remains the biggest apparel market in the world.
Guess is a specialty retailer that designs, markets,
distributes and licenses one of the world's leading lifestyle
collections of contemporary apparel and accessories for men, women
See our complete analysis for Guess
The North American retail business constitutes just about 30% of
Guess' value and is the second most important business segment for
the retailer in our analysis. This business has remained weak in
fiscal 2013 so far mainly due to lower store traffic. The decline
in store traffic was caused by Guess' strategy to increase
full-priced sell through and reduce the number of markdowns and
discounts. Moreover, the accessories business has also
struggled due to a lack of fashion newness while the apparel
industry remains highly competitive, promotional and sensitive to
emerging fashion trends.
How Is Guess Addressing It?
However, last quarter was better for Guess' North American
retail business as the accessories business improved and did well
over the Black Friday weekend. The retailer plans to continue its
focus on product designs to elevate its brand image. Improving
women's apparel products was a major focus for Guess in fiscal
2012. The efforts paid off as women's apparel has 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.
Following this success, Guess has worked on improving its
product offerings in men's apparel and accessories. This generated
good results in Q3 of fiscal 2013 with men's apparel and footwear
We believe that it's only a matter of time until Guess increases
its promotional activities to respond to the industry trends. With
the promising performance of its product categories, the North
American retail business should improve in the near future.
Furthermore, an improvement in the e-commerce channel will
complement its growth in the retail business and will be helped by
its Global World of Guess branding site as well as its m-commerce
(mobile commerce) channel which launched in 2011.
Our price estimate for Guess stands at $28
, implying a premium of about 15% to the market price.
How a Company's Products Impact its Stock Price at