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Delta Apparel vs. Guess: Which Stock Should You Bet On?
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The consumer discretionary sector is bubbling with optimism amid still lower gas prices, a strong job market and rising consumer confidence.
In the consumer discretionary sector, the textile/ apparel industry has been looking up recently. Let’s reflect on two textile companies by comparing their fundamentals -- Guess? Inc. (GES - Free Report) and Delta Apparel (DLA - Free Report) both of whom carry a Zacks Rank #2 (Buy).
After reporting negative surprises for the past two quarters, Guess’ second-quarter fiscal 2017 earnings outpaced the Zacks Consensus Estimate of 6 cents by 16.7% driven primarily by strong performance in Europe. Results were far better than management’s projection of a loss of 4–8 cents.
Moreover, the company anticipates comps to improve in the second half and hence raised the lower end of its earnings outlook. The company now expects adjusted earnings per share in the range of 62–75 cents compared with 55–75 cents projected previously.
Delta Apparel, on the other hand had reported positive surprises for the last three consecutive quarters. For third-quarter fiscal 2016, the apparel producer reported higher than expected third quarter earnings wherein results surpassed estimates by 11.1% backed by higher margins.
While Guess reported an average positive surprise of 36.73% in the trailing four quarters, Delta Apparel reported an average positive surprise of 32.56%.
Fundamentals
Delta Apparel’s strategy to focus on high margin products helps it in sustaining margins. Further it regularly shuts down underperforming facilities and retrenches labor in order to maintain cost
The three pronged approach initiated by Guess in fiscal 2016 of revamping its denim heritage, making the clothes affordable and changing stocks more often seems to be bearing result. This has also resulted in improvement of its comps. Guess has also been divesting its underperforming assets to preserve margins. The company’s global cost-reduction plan is well on track and is anticipated to generate $25 million in annualized operating cost savings by 2018. The initiative includes a plan to reduce non-store payroll through job cuts in all regions.
What Do the Numbers Say?
While earnings and fundamentals are certainly important, it is vital to know how much investors are paying for the earnings as well. In this respect, Delta Apparel is the winner as it is trading at a relative bargain now. Its P/E ratio is 12.45, which is favorable compared to the industry’s P/E ratio of 14.60. Guess, however, is overvalued with a P/E ratio of 25.56, which is unfavorable compared to the industry.
In terms of share price also, Delta Apparel is ahead with a 23.3% appreciation year-to-date in 2016 against Guess, whose share price has plummeted 17%.
However, with regard to long-term growth, Guess seems to have the lead. Its estimated long-term growth rate is 16.5%, which is in front of Delta Apparel’s long term growth rate of 15%.
However both these stocks carry a VGM Score of ‘A.’
Dividend Yields
In terms of shareholder’s return, Guess emerges the winner as it rewards its shareholders with attractive dividends. The company has a dividend yield of 5.6%. However, Delta Apparel does not pay dividends to its shareholders.
Delta, the Winner
Undoubtedly, both Guess and Delta Apparel have delivered the goods in 2016 and have their own share of strengths and weaknesses. However, Delta Apparel emerges the winner when it comes to shareholders return and share price appreciation and valuation.
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Delta Apparel vs. Guess: Which Stock Should You Bet On?
The consumer discretionary sector is bubbling with optimism amid still lower gas prices, a strong job market and rising consumer confidence.
In the consumer discretionary sector, the textile/ apparel industry has been looking up recently. Let’s reflect on two textile companies by comparing their fundamentals -- Guess? Inc. (GES - Free Report) and Delta Apparel (DLA - Free Report) both of whom carry a Zacks Rank #2 (Buy).
Consumer Discretionary Sector Price Index
Consumer Discretionary Sector Price Index
Earnings Performance
After reporting negative surprises for the past two quarters, Guess’ second-quarter fiscal 2017 earnings outpaced the Zacks Consensus Estimate of 6 cents by 16.7% driven primarily by strong performance in Europe. Results were far better than management’s projection of a loss of 4–8 cents.
Moreover, the company anticipates comps to improve in the second half and hence raised the lower end of its earnings outlook. The company now expects adjusted earnings per share in the range of 62–75 cents compared with 55–75 cents projected previously.
Delta Apparel, on the other hand had reported positive surprises for the last three consecutive quarters. For third-quarter fiscal 2016, the apparel producer reported higher than expected third quarter earnings wherein results surpassed estimates by 11.1% backed by higher margins.
While Guess reported an average positive surprise of 36.73% in the trailing four quarters, Delta Apparel reported an average positive surprise of 32.56%.
Fundamentals
Delta Apparel’s strategy to focus on high margin products helps it in sustaining margins. Further it regularly shuts down underperforming facilities and retrenches labor in order to maintain cost
The three pronged approach initiated by Guess in fiscal 2016 of revamping its denim heritage, making the clothes affordable and changing stocks more often seems to be bearing result. This has also resulted in improvement of its comps. Guess has also been divesting its underperforming assets to preserve margins. The company’s global cost-reduction plan is well on track and is anticipated to generate $25 million in annualized operating cost savings by 2018. The initiative includes a plan to reduce non-store payroll through job cuts in all regions.
What Do the Numbers Say?
While earnings and fundamentals are certainly important, it is vital to know how much investors are paying for the earnings as well. In this respect, Delta Apparel is the winner as it is trading at a relative bargain now. Its P/E ratio is 12.45, which is favorable compared to the industry’s P/E ratio of 14.60. Guess, however, is overvalued with a P/E ratio of 25.56, which is unfavorable compared to the industry.
In terms of share price also, Delta Apparel is ahead with a 23.3% appreciation year-to-date in 2016 against Guess, whose share price has plummeted 17%.
However, with regard to long-term growth, Guess seems to have the lead. Its estimated long-term growth rate is 16.5%, which is in front of Delta Apparel’s long term growth rate of 15%.
However both these stocks carry a VGM Score of ‘A.’
Dividend Yields
In terms of shareholder’s return, Guess emerges the winner as it rewards its shareholders with attractive dividends. The company has a dividend yield of 5.6%. However, Delta Apparel does not pay dividends to its shareholders.
Delta, the Winner
Undoubtedly, both Guess and Delta Apparel have delivered the goods in 2016 and have their own share of strengths and weaknesses. However, Delta Apparel emerges the winner when it comes to shareholders return and share price appreciation and valuation.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>