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Will Cost Woes Take the Shine Off Guess? (GES) Q1 Earnings?

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Guess?, Inc. (GES - Free Report) is scheduled to release first-quarter fiscal 2020 results on Jun 6. The renowned apparel and accessories designer’s bottom line has underperformed the Zacks Consensus Estimate by average of 4.4% in the trailing four quarters.

Let’s see what’s in store for the company this time around.

Guess?, Inc. Price and EPS Surprise

Guess?, Inc. Price and EPS Surprise

Guess?, Inc. price-eps-surprise | Guess?, Inc. Quote

What to Expect?

The Zacks Consensus Estimate for the first quarter has remained stable in the past 30 days at a loss of 26 cents, wider than a loss of 23 cents reported in the year-ago quarter. Nonetheless, the consensus mark for revenues is $539 million, implying growth of 3.5% from the year-ago quarter’s reported figure.

Factors Driving the Quarter

Guess? is likely to gain from strength of its Europe and Asia businesses, which have long been driving its top line. These regions are benefiting from store openings and strong e-commerce sales. Notably, Guess?  is on track with its digital-first initiative and has been investing in brand building through social media platforms such as Facebook, Instagram and YouTube. Further, the company has been focusing on linking brick-and-mortar stores, e-commerce and mobile sales to improve online operations.

Management had earlier stated that its e-commerce business in Europe is gradually approaching the size of its American e-commerce operations. As for Asia, digital sales in China have been a major driver as the company’s alliance with Tmall is yielding results. These efforts are expected to help the company expand its customer base and enrich their experience. These are likely to drive sales in the to-be-reported quarter.

Increased Costs Pose Hurdles

We note that rising distribution and logistics costs in Europe have long been a hurdle for Guess? This, along with a rise in inventory levels in China weighed on the company’s margins in the last reported quarter. Additionally, the company’s SG&A expenses have been rising. Management earlier projected SG&A expenses to increase in the first quarter due to higher advertising costs. Further, operating margin is expected to decline 4-4.5% in the first quarter, predominantly due to rise in expenses.

These factors are likely to dent the bottom line in the quarter under review. For the first quarter of 2020, the company expects loss in the range of 25-29 cents.

What the Zacks Model Unveils

Our proven model doesn’t show a beat for Guess?this earnings season. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.

Though Guess? carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

American Eagle (AEO - Free Report) has an Earnings ESP of +0.47% and a Zacks Rank #3.  You can see the complete list of today’s Zacks #1 Rank stocks here.

CarMax (KMX - Free Report) has an Earnings ESP of +2.80% and a Zacks Rank #3.

Lovesac Company (LOVE - Free Report) has an Earnings ESP of +11.58% and a Zacks Rank #3.

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