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Guess CEO's Impact Won't Be Felt Until Q3

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Guess?, Inc. (NYSE: GES) is scheduled to announce its F1Q17 results on May 25. Wunderlich’s Eric Beder reiterated a Buy rating for the company, with a price target of $27. The analyst said that CEO Victor Herrero's impact is unlikely to be fully felt until 3Q, although in the longer term Mr. Herrero could change the trajectory of the overall business.

1Q Unlikely To Be Very Positive

Analyst Eric Beder expects Guess to report its EPS at $0.07, below the Street and guidance.

The company's high margin Domestic Wholesale segment is driven by Macy's, Inc. (NYSE: M) and the current fashion offerings were driven by prior management and “does not reflect the vast majority of changes in product philosophy (more fashion risks) and operation (quicker supply chain) that new management is undertaking.” Beder added that the 1Q performance was not reflective of the FY17 results.

Loss Per Share Possible In 2Q

The analyst expects Guess to announce its 2Q guidance at $0.11, below the Street. The company could even record a loss per share for the quarter, with department store selling and the domestic stores remaining weak, while better operations in Europe being offset by currency headwinds.

“2Q should be the final quarter where new management has a limited ability to make material changes to the business model and the product mix; it should be viewed as another period of slow corrections,” the Wunderlich report noted.

2H Could Change Investors’ Minds

The new Guess is likely to become more and more visible in the back half of FY17. There is likely to be a higher focus on hitting key fashion trends, with lower initial pricing and significant supply chain upgrades. Moreover, a more streamlined design process can be anticipated.

All of these factors should “drive more fashion excitement and create a materially more responsive company with the ability to drive positive domestic same store sales and begin to restore what has been material margin erosion,” Beder said.

Latest Ratings for GES

Feb 2018B. Riley FBRUpgradesNeutralBuy
Feb 2018KeyBancDowngradesOverweightSector Weight
Dec 2017B. Riley FBRReinstatesNeutralNeutral

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Posted-In: Eric Beder WunderlichAnalyst Color Long Ideas Reiteration Analyst Ratings Trading Ideas


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