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Guess? Inc. (NYSE:GES) reports preliminary financial results for the quarter ended Oct. 31, 2012.

Guess? Inc. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Guess? Inc.'s analysis versus peers uses the following peer-set: Gap Inc. (NYSE:GPS), Urban Outfitters Inc. (NASDAQ:URBN), American Eagle Outfitters Inc. (NYSE:AEO), Abercrombie & Fitch Co. Cl A (NYSE:ANF), Carter's Inc. (NYSE:CRI), Fifth & Pacific Companies Inc. (FNP), Stein Mart Inc. (NASDAQ:SMRT), and bebe Stores Inc. (NASDAQ:BEBE). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-10-312012-07-312012-04-302012-01-312011-10-31
Revenues628.8635.4579.3775.8642.8
Revenue Growth %(1.0)9.7(25.3)20.7(5.1)
Net Income36.642.626.595.265.7
Net Income Growth %(14.0)60.9(72.2)44.79.3
Net Margin %5.86.74.612.310.2
ROE % (Annualized)13.615.29.031.822.0
ROA % (Annualized)8.69.75.720.514.3

Valuation Drivers

Guess? Inc.'s current Price/Book of 2.1 is about median in its peer group. The market expects less growth from Guess? Inc. than the median of its chosen peers (P/E of 11.4 compared to peer median of 22.4) and for its current rates of return that are around peer median (ROE of 17.3%) to decline.

The company attempts to achieve high profit margins (currently 7.7% vs. peer median of 6.4%) through differentiated products. It currently operates with peer median asset turns of 1.5x. Guess? Inc.'s net margin is its lowest relative to the last five years and compares to a high of 11.5% in 2011.

Economic Moat

Changes in the company's revenues are in-line with its peers (annual revenue changed by 8.1%) but its earnings performance has been better -- its annual earnings changed by -8.1% compared to the peer median of -16.6%, implying that it has better cost control relative to its peers. Guess? Inc. currently converts every 1% of change in revenue into -1.0% of change in annual reported earnings.

Guess? Inc.'s current return on assets is around peer median (11.1% vs. peer median 11.1%). This contrasts with its higher than peer median return on assets over the past five years (17.2% vs. peer median 8.4%), suggesting that the company's relative operating performance has declined.

The company's gross margin of 43.4% is around peer median suggesting that Guess? Inc.'s operations do not benefit from any differentiating pricing advantage. In addition, Guess? Inc.'s pre-tax margin of 11.6% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth and Investment Strategy

While Guess? Inc.'s revenues growth has been above the peer median (8.7% vs. 1.9% respectively for the past three years), the stock's P/E ratio of 11.4 is less than the peer median. This implies that the company's earnings are peaking and the market expects a decline in its growth expectations.

Guess? Inc.'s annualized rate of change in capital of 13.4% over the past three years is higher than its peer median of -1.4%. This investment has generated an above peer median return on capital of 25.6% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

Guess? Inc. has reported relatively strong net income margin for the last 12 months (7.7% vs. peer median of 6.4%). This strong margin performance was accompanied by a level of accruals that was around peer median (4.2% vs. peer median of 4.2%) suggesting that the reported net income is supported by a reasonable level of accruals.

Guess? Inc.'s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Company Profile

Guess?, Inc. designs, markets, distributes and licenses a lifestyle collections of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities. Its apparel is marketed under numerous trademarks including GUESS, GUESS?, GUESS U.S.A., GUESS Jeans and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO and Gc. The company operates its business through five segments: North American Retail, Europe, Asia, North American Wholesale and Licensing. The North American Retail segment includes the company's retail operations in North America. The Europe segment includes the company's wholesale and retail operations in Europe and the Middle East. The Asia segment includes the company's wholesale and retail operations in Asia. The North American Wholesale segment includes the company's wholesale operations in North America and export sales to Latin and South America. The Licensing segment includes the worldwide licensing operations of the company. The company was founded by Maurice Marciano in 1981 and is headquartered in Los Angeles, Calif.

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Source: Earnings Analysis: Guess? Inc.