Like other apparel companies, Guess, Inc. GES had to temporarily shut stores amid the coronavirus outbreak. This primarily affected first-quarter fiscal 2021 results, with the top and the bottom line missing the Zacks Consensus estimates as well as deteriorating year over year.
Nevertheless, the company is on track with reopening stores as restrictions to check the coronavirus outbreak are being lifted gradually. Moreover, management stated that the reopened stores have been performing above expectations.
Apart from this, Guess? is undertaking a number of measures to enhance its financial position amid the pandemic. Among other moves, the company is undertaking tiered salary curtailments temporarily for all its U.S. corporate workers at the management level. Further, it is delaying annual merit raises and considerably reducing store occupancy costs, capital expenditures, inventory purchases and overall expenses. Let’s dive deeper.
Factors Working Well for Guess?
Guess? is benefitting from its solid digital efforts. The company is on track with its digital-first initiative and has been investing in brand building through social media platforms such as Facebook FB, Twitter TWTR, Instagram and YouTube. Further, Guess? is focusing on linking brick-and-mortar stores, e-commerce and mobile sales to improve online operations. This is likely to have enabled customers to reserve merchandise online and pick them up in stores. Management is also planning to improve e-commerce operations by undertaking efforts such as better data capturing, improved customer profiling, personalized marketing and relationship management.
Well, the company’s online business remained operational even amid the coronavirus-led store closures. Although its e-commerce websites have witnessed reduced traffic, conversion rates look strong. In fact, management is optimistic about its e-commerce growth in the nearterm.
Apart from this, Guess? that shares space with Hanesbrands HBI is boosting operating margin through cost-saving efforts, enhancing operating efficiencies as well as undertaking gross margin improvement efforts. Moreover, its focus on customer-centric initiatives including global e-commerce strategy, sales force implementation as well as omnichannel experience redesign projects bodes well. Management believes that robust customer centric efforts will increase the company’s e-commerce business penetration by an additional five points over the coming three years.
These upsides are likely to help the Zacks Rank #3 (Hold) company counter cost-related challenges. Incidentally, the company’s adjusted SG&A expenses increased significantly in the fiscal first quarter, wherein the novel coronavirus hurt the company’s performance. Guess?’s adjusted loss came in at $1.81 per share, wider than Zacks Consensus Estimate of a loss of 99 cents. Also, the metric was wider than a loss of 25 cents reported in the year-ago quarter. Further, net revenues fell 51.5% year over year and missed the consensus mark. Sales in the quarter were affected by store closures as well as reduced productivity in stores that were operational amid the COVID-19 pandemic.
Nonetheless, the aforementioned drivers and store reopening are likely to aid growth. We note that, shares of Guess? have gained 24.7% in the past three months compared with the industry’s growth of 18.8%. You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.
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