Zacks' Bear Of The Day: Guess

Jul.25.14 | About: Guess? Inc. (GES)

Started in 1981 as a family business, Guess? Inc. (NYSE:GES) designs, markets, distributes and licenses fashion apparel and accessories. Its products are sold through retail, wholesale, e-Commerce and licensing distribution channels.

GES directly operates 491 retail stores in the US and Canada and 350 retail stores in Europe, Asia and Latin America. Additionally, 856 retail stores outside of the US and Canada are operated by company's licensees and distributors.

Mixed Results and Disappointing Guidance

On May 29, Guess? Inc. reported financial results for first quarter of its fiscal 2015. The apparel retailer posted a loss of $0.03 per share, which compared unfavorably with earnings of $0.14 per share a year ago.

However, the loss was narrower than the Zacks Consensus Estimate of a loss of $0.06 per share as well as management’s expected range of a loss of $0.09–$0.05 per share. Tighter expense control was the main factor behind better-than-expected results.

Revenues for the quarter were $523 million, 5% lower than the prior year and down 6% in constant currency terms. Comps fell 3.8% in the quarter due to lower mall traffic, but were better than 5% shortfall in the previous quarter.

According to the company, though the first two months of the quarter were affected by the change in Easter timing and adverse weather conditions, the business rebounded strongly in April.

However, the company provided a downbeat outlook for the upcoming quarter. They now expect both revenues and earnings to be lower than the prior year level. The management does not expect any notable improvement in Europe this year. They also expect economic conditions to continue to be challenging in Asia, especially in Korea.

In North America, they expect continued markdown pressure which is likely to more than offset the product cost improvements.

Downward Revisions

Due to weak guidance, quarterly and annual estimates have been revised downwards in the past few weeks. Zacks consensus estimates for the current quarter and year are now $0.28 per share and $1.48 per share respectively down from $0.41 per share and $1.56 per share, 60 days ago.

Negative estimates revisions sent GES back to Zacks Rank # 5 (Strong Sell) earlier this month.

The Bottom Line

The company has globally diversified business operations but currently it appears to be struggling in all of its major markets. North America sales continue to be very challenging despite very promotional retail environment. Further softness in the Europe and Asia continues to impact results.

Better Play?

Investors looking for a better play in the Apparel industry could consider HanesBrands (NYSE:HBI), a Zacks Rank # 1 (Strong Buy) stock. The company reported strong results for its second quarter with earnings up 43.7% from prior-year quarter.