The specialty retailer
) has had a relatively weak fiscal 2013, with all three
quarters registering a revenue decline driven by weakness in Europe
and North America. While the macroeconomic concerns still persist
in Europe, traffic has remained low in North American retail stores
because of low promotional activities. On the other hand, Guess'
Asian business has been growing at a healthy rate.
Our price estimate for Guess stands at roughly a 15% premium to
the market price. What justifies this premium? Can Guess exceed
We believe that gradual improvement in Europe and the greater
contribution of its Asian business can be positive catalysts for
the stock. In addition to this, the improving performance of
product segments in North American retail will further help.
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
Europe Can Be A Better Contributor
European Business accounts for about 40% of Guess' revenues and
is the most valuable segment for its stock according to our
estimates. As most of the retailer's European business is situated
in southern Europe, the current weak macroeconomic situation in
countries such as Spain, Italy and Greece makes this business
vulnerable in the near term.
However, amid the persistently tough economic conditions, Guess'
performance in the Italian market has improved driven by increased
promotions. Moreover, the retailer is planning to further expand
its business in Europe by mainly targeting under-penetrated
markets of Northern and Eastern Europe. It also received positive
results from its development markets of Russia and Germany. The
revenues in Russia registered more than 100% growth in the recent
quarter, and the next season's orders were up by 50%. Therefore, we
believe that while the economic conditions will remain unfavorable
in the near-term, the European market has good potential in
the longer-term if Guess can successfully execute the expansion and
continue the success it has seen with promotions.
According to our estimates, the European operations
constitute ~ 30% to the company's value.
Window Of Hope In North America
According to our estimates, the North American retail business
is second in the list of most valuable stock drivers. This business
also remained weak due to low store traffic. The decline in store
traffic was driven by Guess' strategy to increase full-priced sell
through and reduce the number of markdowns and discounts. Moreover,
the accessories business also struggled due to lack of fashion
newness. As the apparel industry remains highly competitive,
promotional and sensitive to emerging fashion trends, Guess might
be missing out due to the aforementioned reasons.
However, the last quarter was better for Guess' North American
retail as the accessories business improved and did well over the
Black Friday weekend. The retailer is planning to improve its focus
on its product design in-order to elevate its brand image.
Moreover, 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. Guess 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 them attune better to changing
Following this success, Guess has worked on improving the
product offerings in men's apparel and accessories. This has
generated fruitful results in the recent quarter with men's apparel
and footwear performing strongly. We believe that it's only a
matter of time until Guess increases its promotional activities to
respond to industry trends. With the promising performances of its
product categories, the North American retail business can improve
in the future. Furthermore, improvement in the e-commerce channel
will complement the retail business' growth. Guess launched its
Global World of Guess branding site as well as its m-commerce in
According to our estimates, North American retail constitutes
just under 30% to the company's value.
Asia Will Revive Guess' Growth
Although the revenue contribution of the Asian region still remains
low, it has increased from 6% in 2008 to 10% in 2011. Moreover, the
business in this region has grown by 16%, 21% and 8% in the past
three quarters. Asia is one of the most important markets for
apparel retailers with China being the focal point. Apparel
retailers such as
Abercrombie & Fitch
) are beginning to expand in the Chinese market. However,
Guess will have the first mover advantage as Abercrombie is still
in the early stages with only 3 stores in the region. Even Gap (
) opened its first outlet stores in China in its last quarter.
Along with China, Guess registered strong double digit growth in
Although the Asian operations currently do not contribute much
value to the company, given the potential and the plans for
expansion, this region will be critical for future growth. Guess
plans to open 40 stores in the region next year and
it partnered with a licensee, which operates around 2,400
stores across Asia. Asia, which houses two of the world's largest
economies, is relatively under-penetrated by western brands. This
makes it an important region for Guess as well as other apparel
According to our estimates, the Asian operations constitute
around 15% to the company's value.
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