Jefferies has trimmed the target price of Guess?, Inc. GES to $18 from $20 after the company reported weak quarterly results following a "challenging" top line.
Quarterly Results
The company's first-quarter results missed expectations, "driven by a weaker top line, including NA comps of (4 percent) versus the Street of (1.6 percent)."
"While we continue to see significant LT opportunity, FY'17 should be a reset year for GES and ultimately, we need to see signs of top-line improvement for significant margin expansion to materialize," analyst Randal Konik wrote in a note.
While most key regions fell short of expectations, Europe was a bright spot, with comps increasing in the mid-teens, accelerating from high-single-digits in the fourth quarter.
Guidance
However, the company guided second quarter below the Street and lowered the FY'17 outlook, due to the weaker start to the year and the near-term top-line snags.
"While we are encouraged by the improving trends in Europe, we remain cautious on the company's ability to improve traffic near term in NA, especially given persistent tourist headwinds. We will also be closely monitoring Asia, which has been hampered by weakness in Greater China," Konik highlighted.
Rating And Justification
Konik, who has a Hold rating on the stock, said the company's "sales targets ($3 billion in sales by FY'19 from $2.2 billion in FY'16) will require a significant acceleration in the current sales trend."
"Further, we note that the three-year plan is not without some execution risk, as it hinges in large part on new store growth, primarily related to unit expansion in Asia (esp. China), Europe, and Factory and G by Guess in the Americas," the analyst noted.
At the time of writing, shares of Guess were down 5.65 percent to $15.52.
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