Despite facing challenges at its U.S. retail business, Guess?, Inc. GES has been recording year-over-year growth in its top line for five straight quarters now. The robust top-line performance stems mainly from the superb performance in Europe and Asia. Sales in these regions have been booming, courtesy of store additions as well as solid e-commerce business.
Notably, these factors have helped this Zacks Rank #2 (Buy) stock surge 38.5% so far this year, crushing the industry's growth of 2.2%. While weakness in the U.S. retail business, due to soft traffic, remains a hurdle, let's see if the company's international strength can offset these barriers and sustain its solid momentum.
Europe & Asia vs Americas Retail
Guess? has been delivering increased sales in these regions for roughly a year now, driven by higher comparable store sales, impressive e-commerce business and focus on store expansion. In third-quarter fiscal 2018, sales in Europe advanced 19%, mainly owing to the company's efforts to enhance sales quality and merchandising organisation. Comps jumped 10% thanks to store openings and strong e-commerce business, with the latter gaining from Guess?'s own website and its alliances with Auto and Zalando. As for the third-quarter store openings, the company opened 22 net new stores in Europe, of which 11 were introduced in Guess?'s fastest growing markets — Turkey and Russia. Notably, the company's wholesale business also remained sturdy for the second straight season.
In Asia, sales increased 17% led by store openings and comps growth (including e-commerce) of 3%. During the third quarter, Guess? Introduced 10 net new directly operated stores in China, where the company also sees robust prospects from its digital business. Well, Guess?'s digital footprint in China is on the rise, thanks to its partnership with Tmall and new deal with VIP.com. Additionally, the company's operating margin in Asia expanded year over year for the fourth straight time, in the third quarter.
On the contrary, sales in the Americas Retail tumbled 13%, marred by a 10% fall in comps (including e-commerce) and adverse impacts from hurricanes. Americas Retail has been posting soft results for a while now as the region is struggling with intense competition and sluggish store traffic stemming from consumers' evolving preferences. Consequently, management is progressing well with its plans of curtailing its U.S. footprint by undertaking store closures.
While these factors are likely to hurt sales, management expects strength in Europe and Asia to tide over these obstacles. Evidently, the company projects fourth-quarter revenues for the company to rise in a range of 5-7%, as robust growth in Europe and Asia is likely to compensate for the weakness in Americas Retail. Thus, we believe that Guess?'s sturdy international business, with its constant focus on store expansions and enhancing e-commerce business, is likely to propel the company further.
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Ralph Lauren Corporation RL has a long-term growth rate of 15% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Michael Kors Holdings Limited KORS, carrying a Zacks Rank #2, has along-term growth rate of 7.5%.
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