Guess?, Inc. (GES - Free Report) is surely worth giving a shot as this apparel and accessories designer’s shares rallied almost 59% in a year compared with the industry’s growth of 41%. In fact, this Zacks Rank #2 (Buy) company has gained 6.8% in just five days, attributable to its stellar second-quarter fiscal 2019 results and raised outlook.
That said, let’s delve into the factors that make Guess? a promising bet.
Europe & Asia — Primary Drivers
Guess?’s growth story can be mainly attributed to strength in the company’s Europe and Asia businesses, which have long been driving the company’s revenues. These regions have been delivering superb results for quite some time now, courtesy of constant store openings and e-commerce growth, ultimately leading to positive comps growth. These factors helped revenues in Europe surge 22% (up 19% on a constant-currency basis) in the second quarter of fiscal 2019. Markedly, comps improved for the 12th straight quarter in Europe. Management’s strategy to improve sales quality and merchandising structure yielded results. Coming to Asia, sales advanced 32%, while it grew 29% on a currency-neutral basis. Greater China and Japan, especially, witnessed robust results. Guess? remains committed toward making investments in Europe and Asia, and expects sales in these regions to rise in double-digits in fiscal 2019.
Guess? has implemented stringent cost-control and margin-growth initiatives. Incidentally, the company posted its fifth and third straight quarter of gross and operating margin expansion in second-quarter fiscal 2019, respectively. During the quarter, gross margin expanded 230 basis points (bps) to 37.1% owing to lower markdowns and rents as well as increased IMU’s. Further, adjusted operating earnings surged 47.4% to $36.9 million, courtesy of higher revenues and gross margin. This led to adjusted operating margin growth of 130 bps to 5.7% including a 10-bp positive impact of currency. Management remains confident of ending fiscal 2019 on a solid note, wherein it expects to deliver operating margin of 7.5%, backed by continued revenue improvements and cost-containment efforts.
Digital Endeavors Bode Well
The company is on track with its digital-first initiative and has been investing in brand building through social-media platforms such as Facebook (FB - Free Report) , Instagram and YouTube. The company is also optimistic about its recent partnership with video-sharing application, TikTok. Further, Guess? has been focusing on linking brick-and-mortar stores, e-commerce and mobile sales to improve its online operations. This has enabled customers to reserve merchandise online and pick them up from stores. In fact, e-commerce growth in the company’s Europe and Asia segments played a major role in augmenting the company’s comps and top line. These efforts are expected to help the company boost its customer base and enrich their experience, which, in turn, should drive its sales.
Q2 Retains Growth Trend, Guidance Fuels Estimates
Guess? posted robust second-quarter fiscal 2019 results, wherein both the top and the bottom lines improved year on year for the fifth and eighth consecutive time, respectively. While earnings were backed by solid sales and enhanced margins, sales were fueled by continued strength in Europe and Asia (as discussed above). Apart from concentrating on Europe and Asia expansions, Guess? also strives to uplift the performance of Americas Retail. All said, management raised its outlook for fiscal 2019. It now expects net revenue growth in the range of 9-9.5% compared with the previous range of 8.5-9.5%. At cc, consolidated net revenues are expected to grow 8-8.5%, up from the previous projection of 6.5-7.5%. Further, adjusted earnings per share for fiscal 2019 are estimated between 94 cents and $1.03, up from the prior view of 88-99 cents.
These factors have made analysts more optimistic about the stock’s ongoing performance. Evidently, the Zacks Consensus Estimate for fiscal 2019 has gone up by 3 cents to $1.04, since the quarterly outcome. Undoubtedly, investors have strong reasons to stay upbeat about the company.
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