Guess, Inc. (GES - Free Report) has been gaining from sturdy growth in Europe business for a while. Also, the company’s focus on its digital-first initiative, efficient capital allocation, cost-containment efforts and focus on product development are driving its performance. On the back of these upsides, this Zacks Rank #3 (Hold) stock has increased 16.2% in the past six months against the industry’s decline of 6.1%.
Guess? is undertaking initiatives to grow its business. Evidently, the company unveiled a five-year strategic plan that includes global expansion, profit growth and value creation for its shareholders.
To this end, Guess? plans to keep its brand relevant by focusing on strategic collaborations to enhance customer engagement. Further, the company intends to be customer centric and provide differentiated products to its buyers. Moreover, management is committed to search for efficiencies in its global model to optimize operations and penetrate into untapped markets worldwide.
Guidance Reveal Bright Prospects
Strength in the Europe and Americas Wholesale segments as well as solid cost-control measures encouraged the company to raise earnings view for fiscal 2020 during its third-quarter fiscal 2020 earnings call. This guidance along with management’s sales and operating margin projections were reiterated when the company revealed its five-year strategic plan on Dec 3, 2019.
Additionally, the company stated that it expects gross margin to increase 160 basis points (bps) year over year in fiscal 2020. Free cash flow is forecast in the range of $57-$62 million compared with negative $28 million reported in fiscal 2019.
Further, the company provided a fresh outlook for the fiscal 2021 to fiscal 2025 period. Sales are expected to rise by low single-digits CAGR, whereas earnings are likely to increase high-teens digit on a CAGR basis. Guess? expects operating profit to increase by a mid-teens number on a CAGR basis and operating margin to rise 90 bps annually on an average during the same time period. Moreover, management envisions gross margin to increase 80 bps annually on an average.
Free cash flow is forecast to be up by low-twenties on a CAGR basis from fiscal 2021 through fiscal 2025.
Apart from this, net revenues in all the segments are likely to increase by low single digits in fiscal 2025 compared with fiscal 2020 figures.
We believe that the company’s newly-unveiled strategic plan will likely strengthen its position and help it stay in investors’ good books.
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