Guess? (GES) Woes to Continue: Should You Dump It Now? - Analyst Blog

On Sep 17, 2014, we issued an updated research report on Guess? Inc. (GES). The apparel retailer reported dismal second-quarter fiscal 2015 results on Aug 28.

Guess?'s results were disappointing as both earnings and sales missed the Zacks Consensus Estimate and declined from the year-ago figures. The company also lowered the fiscal 2015 outlook.

Earnings per share of 26 cents plunged 50% year over year due to weak top line and decline in consumer spending. Second-quarter results also missed the Zacks Consensus Estimate by 7.1% and were at the lower end of management's expectation of 25 to 30 cents per share.

Revenues slipped 4.8% year over year to $608.6 million due to soft sales in most of the company's segments. Additionally, demand in North America and Europe declined in the quarter which affected revenues. Revenues also missed the Zacks Consensus Estimate of $619 million by 1.7% and management's expectation of $615 to $630 million.

Operating income slipped 55.4% year over year to $29.9 million and operating margin shrank 560 basis points (bps) year over year to negative 4.9% due to lower European wholesale shipments and negative comparable store sales and more markdowns in North America Retail and Europe Retail. (Read: Guess? Misses on Q2 Earnings, Revenues; Lowers Outlook)

We note that the company has reported lackluster results throughout fiscal 2014 as well as the first half of fiscal 2015 due to lower store traffic in North America. Tough retail conditions negatively affected Guess? resulting in soft traffic and conversion rates. Though the company has undertaken initiatives to improve the traffic in North America, we do not expect any visible improvement in the near term.

Moreover, the worsening European economic condition and declining consumer spending are expected to affect comps negatively in the coming quarter.

Guess? currently has a Zacks Rank #5 (Strong Sell). Some better-ranked stocks to consider in the apparel industry include Abercrombie & Fitch Co. (ANF), Perry Ellis International Inc. (PERY) and Michael Kors Holding Ltd. (KORS). All these stocks have a Zacks Rank #2 (Buy).

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