Guess', Inc. (GES - Free Report) is set to report second-quarter fiscal 2017 results on Aug 24, after the market closes. Last quarter, the company posted a negative earnings surprise of 21.05%.
However, we note that Guess’ surpassed estimates in two of the trailing four quarters with an average positive surprise of 13.40%.
Let’s see how things are shaping up for the upcoming announcement.
Factors at Play
The retail sector is likely to report weaker comps in the quarter and Guess’ is unlikely to be an exception. The apparel sector has been reporting declining comps and revenues because more and more buyers prefer to shop online. This trend is expected to to hurt comps in the to-be-reported quarter as well.
Although apparel retailers like Guess’ have a strong e-commerce business and have recently developed their Omni channel strategy to tap in on the growing popularity of online shopping, these are no competition for Amazon.com Inc. (AMZN - Free Report) which has captured the major share of e-commerce.
However, Guess’ has undertaken a three-pronged approach to improve the performance of its retail business in North America. This initiative is expected to help the company partly offset comps decline in the to-be-reported quarter. Further, it is on track with its cost-reduction initiatives, which are expected to boost margins in the upcoming quarter.
Our proven model does not conclusively show that Guess’ is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Earnings ESP for Guess’ is +33.33%. This is because the Most Accurate estimate is pegged at 8 cents and the Zacks Consensus Estimate is pegged at 6 cents.
Zacks Rank: Guess’ has a Zacks Rank #4 (Sell).
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some stocks in the broader consumer discretionary industry that investors may consider which, as per our model, have the right combination of elements to post an earnings beat this quarter:
Sanderson Farms, Inc. (SAFM - Free Report) with an Earnings ESP of +4.96% and a Zacks Rank #1 (Strong Buy).
J.M Smucker Company (SJM - Free Report) with an Earnings ESP of +2.87% and a Zacks Rank #3.
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