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Guess? (GES) Hurt by Cost Inflation & Currency Volatility
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Things are not looking too rosy for Guess?, Inc. (GES - Free Report) . The company has been bearing the brunt of global cost headwinds and adverse foreign currency translations.
The company’s fiscal 2023 results were affected by severe supply-chain headwinds, which led to product shortages and cost escalations. The ongoing Ukraine war has also impacted energy flows, thereby leading to elevated costs. These aspects led to global inflation, which has also been impacting consumers’ spending patterns.
The Zacks Consensus Estimate for the current fiscal-year earnings per share (EPS) has declined from $3.41 to $2.64 over the past 30 days. Shares of this Zacks Rank #5 (Strong Sell) company have dropped 5% in the past three months compared with the industry’s decline of 1.8%. Let’s delve deeper.
On its last earnings call, management stated that though inflationary pressure is easing, it expects increased interest rates to affect consumer spending. Also, uncertainty surrounding the Ukraine war poses threats to the global economy. Management expects consumers to remain prudent regarding their spending in fiscal 2024.
Additionally, Guess? expects U.S. retailers to maintain tight inventory levels compared with the year-ago period, which is likely to impact the company’s wholesale revenues. Foreign currency headwinds are also likely to linger in fiscal 2024. For fiscal 2024, unfavorable foreign currency is likely to reduce revenue growth by approximately 70 basis points.
In the fourth quarter of fiscal 2023, the company’s gross margin contracted to 44.2% from the 46.3% reported in the year-ago quarter, mainly due to a greater mix of markdowns relative to the year-ago quarter. As a percentage of sales, adjusted SG&A expenses increased to 50 basis points to 31.1%. Adjusted SG&A costs escalated 4% to $254 million due to elevated store selling expenses, including labor inflation and increased selling costs to support the company’s wholesale growth.
In the fourth quarter of fiscal 2023, adjusted earnings from operations came in at $107.5 million, down 14% from the $125.7 million reported in the year-ago quarter. The adjusted operating margin contracted to 2.6% from 13.1% due to escalated costs, reduced government subsidies, increased markdowns and currency headwinds.
For fiscal 2024, Guess? anticipates the GAAP operating margin to be 8-9%, down from the 9.2% delivered in fiscal 2023. The company continues to see labor and store occupancy cost inflation, per its fourth-quarter earnings call.
Beyond the first quarter, Guess? expects the middle quarters to witness modest operating profit pressure due to more prudent top-line assumptions and cost headwinds. That said, the operating margin is likely to expand in the fourth quarter, with contributions from an additional week and most of the cost pressure already absorbed.
All said, management expects revenues to decrease 7-6% for the first quarter of fiscal 2024. On an adjusted basis, the company expects to post a loss in the band of 31-25 cents per share. On a GAAP basis, it expects a loss in the range of 25-19 cents per share for the first quarter of fiscal 2024. For fiscal 2024, management expects the adjusted EPS in the band of $2.45-$2.80 compared with the $2.74 recorded in fiscal 2023.
While solid Europe sales and a focus on six strategic initiatives bode well for Guess?, the abovementioned hurdles cannot be ignored in the near term.
Ralph Lauren currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for Ralph Lauren’s current financial-year sales suggests growth of 2.5% from the year-ago period.
Crocs, which is a casual lifestyle footwear and accessories company, carries a Zacks Rank #2 (Buy) at present. CROX has a trailing four-quarter earnings surprise of 21.8%, on average.
The Zacks Consensus Estimate for Crocs’ current financial-year revenues suggests growth of 12.5% from the year-ago reported figure.
Kontoor Brands, a denim, apparel, footwear and accessories company, carries a Zacks Rank #2. KTB has a trailing four-quarter earnings surprise of 12.4%, on average.
The Zacks Consensus Estimate for Kontoor Brands’ current financial-year sales suggests growth of 2.5% from the year-ago period.
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Guess? (GES) Hurt by Cost Inflation & Currency Volatility
Things are not looking too rosy for Guess?, Inc. (GES - Free Report) . The company has been bearing the brunt of global cost headwinds and adverse foreign currency translations.
The company’s fiscal 2023 results were affected by severe supply-chain headwinds, which led to product shortages and cost escalations. The ongoing Ukraine war has also impacted energy flows, thereby leading to elevated costs. These aspects led to global inflation, which has also been impacting consumers’ spending patterns.
The Zacks Consensus Estimate for the current fiscal-year earnings per share (EPS) has declined from $3.41 to $2.64 over the past 30 days. Shares of this Zacks Rank #5 (Strong Sell) company have dropped 5% in the past three months compared with the industry’s decline of 1.8%. Let’s delve deeper.
Guess?, Inc. Price, Consensus and EPS Surprise
Guess?, Inc. price-consensus-eps-surprise-chart | Guess?, Inc. Quote
Main Impediments on Guess?’s Way
On its last earnings call, management stated that though inflationary pressure is easing, it expects increased interest rates to affect consumer spending. Also, uncertainty surrounding the Ukraine war poses threats to the global economy. Management expects consumers to remain prudent regarding their spending in fiscal 2024.
Additionally, Guess? expects U.S. retailers to maintain tight inventory levels compared with the year-ago period, which is likely to impact the company’s wholesale revenues. Foreign currency headwinds are also likely to linger in fiscal 2024. For fiscal 2024, unfavorable foreign currency is likely to reduce revenue growth by approximately 70 basis points.
In the fourth quarter of fiscal 2023, the company’s gross margin contracted to 44.2% from the 46.3% reported in the year-ago quarter, mainly due to a greater mix of markdowns relative to the year-ago quarter. As a percentage of sales, adjusted SG&A expenses increased to 50 basis points to 31.1%. Adjusted SG&A costs escalated 4% to $254 million due to elevated store selling expenses, including labor inflation and increased selling costs to support the company’s wholesale growth.
In the fourth quarter of fiscal 2023, adjusted earnings from operations came in at $107.5 million, down 14% from the $125.7 million reported in the year-ago quarter. The adjusted operating margin contracted to 2.6% from 13.1% due to escalated costs, reduced government subsidies, increased markdowns and currency headwinds.
For fiscal 2024, Guess? anticipates the GAAP operating margin to be 8-9%, down from the 9.2% delivered in fiscal 2023. The company continues to see labor and store occupancy cost inflation, per its fourth-quarter earnings call.
Beyond the first quarter, Guess? expects the middle quarters to witness modest operating profit pressure due to more prudent top-line assumptions and cost headwinds. That said, the operating margin is likely to expand in the fourth quarter, with contributions from an additional week and most of the cost pressure already absorbed.
All said, management expects revenues to decrease 7-6% for the first quarter of fiscal 2024. On an adjusted basis, the company expects to post a loss in the band of 31-25 cents per share. On a GAAP basis, it expects a loss in the range of 25-19 cents per share for the first quarter of fiscal 2024. For fiscal 2024, management expects the adjusted EPS in the band of $2.45-$2.80 compared with the $2.74 recorded in fiscal 2023.
While solid Europe sales and a focus on six strategic initiatives bode well for Guess?, the abovementioned hurdles cannot be ignored in the near term.
Stocks to Consider
We have highlighted three better-ranked stocks, including Ralph Lauren (RL - Free Report) , Crocs (CROX - Free Report) and Kontoor Brands (KTB - Free Report) .
Ralph Lauren currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for Ralph Lauren’s current financial-year sales suggests growth of 2.5% from the year-ago period.
RL, a designer, marketer and distributor of lifestyle products, has a trailing four-quarter earnings surprise of 23.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs, which is a casual lifestyle footwear and accessories company, carries a Zacks Rank #2 (Buy) at present. CROX has a trailing four-quarter earnings surprise of 21.8%, on average.
The Zacks Consensus Estimate for Crocs’ current financial-year revenues suggests growth of 12.5% from the year-ago reported figure.
Kontoor Brands, a denim, apparel, footwear and accessories company, carries a Zacks Rank #2. KTB has a trailing four-quarter earnings surprise of 12.4%, on average.
The Zacks Consensus Estimate for Kontoor Brands’ current financial-year sales suggests growth of 2.5% from the year-ago period.