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Here Are 3 Factors That Make Guess? (GES) a Promising Pick

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Guess?, Inc. GES appears to be a solid bet, given its sturdy efforts to remain on growth trajectory. Notably, shares of this Los Angeles, CA-based company have increased approximately 7% in the past three months, against the industry’s decline of 7.4%.

Let’s delve into the major factors driving this Zacks Rank #1 (Strong Buy) stock, which also flaunts a VGM score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

European Unit Boosts Top Line

Strength in the Europe business has long been driving the company’s top line. During the second quarter of fiscal 2020, the top line improved 5.8% year over year to $683.2 million. This marks the company’s 12th straight quarter of year-over-year revenue improvement. Solid sales in most regions, especially in Europe, have been favoring it. Revenues in the European region advanced 9.1% (up 14.1% at cc), owing to store openings, improvement in wholesale revenues and comparable sales (comps) growth. Markedly, comps improved for the 16th straight quarter in Europe, at cc.

Management is undertaking growth efforts in this region such as optimizing network, inducing efficiency in sourcing and product development as well as managing costs.  Net revenues from this region are expected to increase mid- to high-single digits in the third quarter, while the same is likely to be up high single digits in fiscal 2020. All said, we expect the European unit to keep fueling the company’s performance.

Digital Operations on Track

Guess? is progressing well with its digital-first initiative and has been investing in brand building through social media platforms. 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. In fact, e-commerce growth drove the company’s comps across most regions in the second quarter of fiscal 2020.

Also, the company is planning to improve e-commerce operations by undertaking efforts such as better data capturing, improved customer profiling, personalized marketing and relationship management. These efforts are expected to help it enhance customer base, which in turn should drive sales.

Efforts to Drive Gross Margin

Guess? is on track to boost gross margin through initial markups or IMU improvement and realignment of prices. Also, the company is progressing well with improving cost structures. The impact of these endeavors was reflected well in the first and second quarters, wherein the gross margin expanded nearly 50 basis points (bps) and 180 bps, respectively. This was backed by occupancy leverage and increased IMUs. Encouragingly, management expects gross margin to increase in fiscal 2020, backed by continued gains from IMUs as well as lower logistics and distribution expenses.

We expect all aforementioned factors to continue bolstering the company’s performance, and help it remain in investors’ good books.

Other Key Picks

Deckers Outdoor Corporation DECK has a long-term earnings growth of 12.1% and a Zacks Rank #1.

Lululemon Athletica Inc. LULU has a long-term earnings growth of 18.2% and a Zacks Rank #2 (Buy).

Rent-A-Center, Inc. (RCII - Free Report) delivered average positive earnings surprise of 49.6% in the trailing four quarters. It currently carries a Zacks Rank #2.

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