Guess Raises Outlook, But Faces Economic Headwinds

| About: Guess? Inc. (GES)
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Several firms comment on Guess (NYSE:GES) after the clothes and accessories retailer posted a 81.5 percent jump in quarterly profit, helped by double-digit revenue growth in all its businesses, and raised its 2008 outlook. However, shares of the company slid more than 7 percent to 49.55 in late electronic trade after closing at $53.40:

- Piper Jaffray says they recommend buying GES shares on any pullbacks given what they believe to be conservative guidance and significant upside potential as sales in international markets continue to exceed forecasts. Gift card breakage totaling $3M ($0.02 to EPS) and a shift of the reporting calendar (from Dec to Jan YE) resulted in approx. $10M-$13M ($0.01 to EPS) of European wholesale shipments landing in FQ2 vs. FQ3 non-shifted LY. Netting these two "events" would have resulted in EPS of $0.37, still outperforming PJ Street-high estimate of $0.35. On balance, the effect of contributions from international markets at higher margin is the key driver of EPS outperformance - a theme they expect to continue. As such, the firm maintains estimates slightly ahead of the guided range. Maintains Outperform and ups tgt to $58 from $56.

- Deutsche Bank reits Buy and ups tgt to $62 from $59 saying after achieving 73% EPS growth in 1H, they believe the current annual guidance for 28% EPS growth is highly conservative. Comp store sales Q3-to-date (i.e. for August) continue to trend in the double-digits, and they expect international growth to continue to be strong. Raising C07 EPS to $1.92 from $1.88, which reflects Q2's upside, offset by a reduction in Q3 EPS estimate to $0.56 from $0.58, to account for a shift in the timing of shipments in Europe to Q2 from Q3. Raising C08 EPS to $2.30 from $2.28.

- CIBC is saying GES 2Q07 beat their estimate by $0.05 and FC by $0.07, with earnings rising 82% in what has been a challenging retail environment for many companies. Even more impressive is the fact that in 2Q, GES was up against last year’s nearly 400% rise in net income where EPS more than quadrupled. However, they note that the company beat by somewhat less than it has in the past three quarters and the hike in guidance from the prior $1.75-$1.80 to $1.79-$1.84 does not quite take into account the 2Q differential.

while management is well known for its cautious guidance, there are some who will be disappointed that it was not raised more. Yet, the firm would also note management was really quite bullish on the call about all its business segments and was particularly positive on its assortments going into the back half of the year. CIBC has adjusted their full year estimate up to $1.96 from prior $1.91, leaving 2H estimates unchanged.

Management said that August comps were still in the double digits, though this was against only a 4% comp, the easiest compare GES has all year, with more difficult comps of 11.3% and 11.8% for Sept and Oct. This might be a cause for concern to some, though they'd note that GES just got through a quarter with tougher comparisons. Management did raise comp guidance for 2H to the mid single digits from low-to-mid single digits previously, and while this does seem conservative, management expressed a lot of confidence in its inventory and product assortments for the back half. Maintains Sector Performer.

Notablecalls: I think Sterne Agee's analyst Margaret Whitfield put it best saying that as we have seen in the past, the guidance provided will prove conservative. The company will beat these numbers.

Management is being somewhat more conservative regarding H2 results, that's for sure. However you slice the guidance (vs. current results), you see management telling you they are not quite sure how H2 is shaping up, considering the economic headwinds. With the stock trading 27x FY08 EPS (based on after hours price), it's likely going to need a breather. While I think GES stock will be buyable for a bounce, I'm not quite sure it's going to happen today or around the $49.50 level.

I suspect there will be some major sellers out there today that do not want to the the risk of H2 shaping up in-line with guidance. The stock is an analyst darling (up over 60% this year alone) and there will be more defenses out today. I just don't think it will be enough to form a meaningful bounce here.

Let me know if you disagree. I'm not saying to outright short GES below the $50 level but as a trader I'd be at least entertaining the thought.