Guess? Results Under Pressure

We believe apparel retailer Guess?, Inc. (GES - Analyst Report) will not be able to deliver upside surprises in future quarters as it has in the recent past. The company has not updated its full-year EPS guidance of $2.47-$2.53 since reporting second-quarter earnings on September 3. The company’s near-term results are likely to disappoint, and we are reducing estimates ahead of third-quarter earnings report, which is scheduled for December 4.

While Guess is most likely outperforming many areas of specialty retail, the company’s results are being negatively affected by slowing economic growth and the strong US dollar. Macro headwinds including home prices falling, tighter credit markets, and rising unemployment are hurting sales and margins. The appreciation of the dollar is also hurting Guess results, as the company generates about a half of its profits in Europe.

That said, the stock looks cheap trading at less 6x next year’s earnings. When macro headwinds finally stabilize, we believe the stock will trade a premium valuation relative to its peers because of Guess stronger prospects for growth. However, it is best to stay neutral on this stock as earnings estimates are likely to decline in the weeks ahead. We maintain our Hold rating.

Read the full analyst report on GES