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Guess? (GES) Gains on Solid European Unit & Digital Efforts

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Guess, Inc. GES has been gaining from consistent top-line growth, backed by sturdy growth in European operations and its digital-first initiative. Moreover, efficient capital allocation, cost-containment efforts and focus on product development are driving its performance. Notably, this trend continued in third-quarter fiscal 2020, wherein the top and the bottom line rose year on year.

In fact, management raised the lower end of its earnings outlook for fiscal 2020. Guess? now envisions adjusted earnings per share in the range of $1.31-$1.36 compared with the previous guidance of $1.28-$1.36.

Clearly, encouraging performance and raised earnings guidance have heightened analysts’ optimism regarding the stock’s performance. Evidently, the Zacks Consensus Estimate for fourth-quarter fiscal 2020 earnings moved up by a penny to $1.11 in the past 30 days. Moreover, Guess?’ shares have increased 7.2% since its earnings release. Further, this impressive performance has been boosting investors’ sentiment for long. Markedly, this Zacks Rank #3 (Hold) stock has rallied 42.9% in the past six months against the industry’s decline of 5.2%.

What’s Driving Guess?’ Performance?

Strength in the Europe business has long been driving Guess?’s top line. During the third quarter of fiscal 2020, revenues in the European region advanced 9.1% (up 13.2% at constant currency) owing to store openings, rise in wholesale revenues and comparable sales (comps) growth. Markedly, comps improved for the 17th straight quarter in Europe. The company is hopeful of reporting high-single digits net revenue growth in Europe for fiscal 2020.

Guess? is progressing well with its digital-first initiative and has been investing in brand building through social media platforms. Additionally, the company is undertaking efforts such as better data capturing, improved customer profiling, personalized marketing and relationship management to further improve e-commerce operations. Also, it has been focusing on linking brick-and-mortar stores, e-commerce and mobile sales to improve online operations. This has enabled customers to reserve merchandise online and pick them up in stores. In fact, e-commerce drove the company’s comps in fiscal third quarter.

Apart from this, Guess? is on track to boost gross margin through initial markups (IMU) improvement and realignment of prices. Further, the company is progressing well with improving cost structures. The impact of these endeavors was reflected in fiscal third quarter, wherein gross margin expanded 90 basis points to 37.3%. In fact, gross margin is expected to keep gaining from IMUs.

Recently, 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. 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 foray into untapped markets worldwide.

Wrapping Up

Guess? continues to battle weakness in Asia owing to broad-based softness in significant markets like China, Korea and Japan. Also, its Americas Retail segment has long been witnessing sluggishness due to macroeconomic factors. Moreover, rising SG&A expenses and volatile currency movements are concerns.

Nevertheless, robust growth in Europe business and the aforementioned growth drivers are likely to help Guess? overcome these barriers and bolster its performance.

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