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Will Soft Comps Hit Guess' (GES) in Q1 Earnings?

Guess', Inc.GES is set to report first-quarter fiscal 2017 results on May 24, after market close. Last quarter, the company posted a negative earnings surprise of 1.72%.

However, we note that Guess' surpassed estimates in three of the trailing four quarters, with a significant average positive surprise of 63.66%.

GUESS INC Price and EPS Surprise

GUESS INC Price and EPS Surprise | GUESS INC Quote

Let's see how things are shaping up for the upcoming announcement.

Factors at Play

We expect Guess' to report weaker comps in the upcoming quarter in accordance with the rest of the retail sector. During the first-quarter earnings season, the apparel sector reported declining comps and revenues because more and more shoppers are preferring to shop online.

Although apparel retailers like Guess' has a strong e-commerce business and has recently developed its Omni channel strategy to tap in on the growing popularity of online shopping, it is no competition for Amazon.com Inc. (AMZN) who have captured the major share of e-commerce.

Further, Guess' remains exposed to unfavorable foreign currency translations due to its substantial presence in the emerging markets. Foreign currency headwinds have been impacting the company's top line over the past few quarters. Though the dollar has weakened slightly in 2016, management expects currency fluctuations to be a significant headwind in fiscal 2017 and expects it to hurt top-line growth, margins and earnings.

However, Guess' has undertaken a three-pronged approach to improve the performance of its retail business in North America. This is expected to help the company partly offset comps decline in the to-be-reported quarter. Further, it is well on track with its cost reduction initiatives which are expected to boost margins in the upcoming quarter.

Earnings Whispers

Our proven model does not conclusively show that Guess' is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP : Earnings ESP for Guess' is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 18 cents.

Zacks Rank : Guess' has a Zacks Rank #4 (Sell) which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks That Warrant a Look

Here are some stocks in the broader consumer discretionary industry that investors may consider which, as per our model, have the right combination of elements to post an earnings beat this quarter:

American Public Education, Inc. APEI , with an Earnings ESP of +2.56% and a Zacks Rank #1 (Strong Buy).

Carnival Corporation CCL , with an Earnings ESP of +5.26% and a Zacks Rank #3.

Callaway Golf Co. ELY , with has an Earnings ESP of +6.9% and a Zacks Rank #2.

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AMER PUB EDUCAT (APEI): Free Stock Analysis Report

CALLAWAY GOLF (ELY): Free Stock Analysis Report

CARNIVAL CORP (CCL): Free Stock Analysis Report

GUESS INC (GES): Free Stock Analysis Report

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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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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