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International Strength Likely to Keep Guess?'s Solid Show On

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Guess?, Inc. (GES - Free Report) has long been in investors’ good books, thanks to its robust past record. Notably, the company has witnessed year-over-year top and bottom-line growth, backed by its solid international presence and strong digital initiatives, among other factors. On that note, let’s delve deeper into the factors, which are likely to drive the stock further.

International Strength Bodes Well

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? is committed toward making investments in Europe and Asia, and expects sales in these regions to rise double digits in fiscal 2019.

In fact, many other textile-apparel players, including lululemon athletica (LULU - Free Report) , Columbia Sportswear Company (COLM - Free Report) and Ralph Lauren (RL - Free Report) , among others, are benefitting from international operations.

Impressive Digital Initiatives

Coming back to Guess?, the company is on track with its digital-first initiative and has been investing in brand building through social media platforms such as Facebook, Twitter, Instagram and YouTube. The company is also optimistic about its recent partnership with video sharing application, TikTok. Further, the company 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 in stores. We expect these efforts to help the company enhance its customer base and enrich their experience, which, in turn, will drive sales.

Solid Margins Trend

Guess? posted its fifth and third straight quarter of gross and operating margin expansion in second-quarter fiscal 2019. 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 is 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.

All said, management raised its outlook for fiscal 2019, when it reported second-quarter results.  It now expects net revenue growth of 9-9.5%. At cc, consolidated net revenues are expected to grow 8-8.5%. Further, adjusted earnings per share for fiscal 2019 are estimated between 94 cents and $1.03.

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