'The Time Is Coming' For Investors To See A Path To Guess?'s Multiple Expansion

Wunderlich’s Eric Beder believes Guess?, Inc. GES is on “two separate paths, materially reducing the money-losing domestic store footprint while employing capital to drive upside in international markets.”

The analyst reiterated a Buy rating on the company, with a price target of $15.

Potential For Multiple Expansion

Although the international gains made by Guess? have been “overshadowed” by domestic weakness, the analyst believes that “the time is nearing where investors will be able to see the path to a business model predicated on higher margin expansion.”

Beder expects the company to be able to demonstrate the positives of its business model to investors in the coming months.

Europe

Although the performance in Europe has been offset by FX issues, the analyst mentioned that the European market has been a “key positive” for Guess?, driven by a robust fashion viewpoint, expansion into the Southern European markets, positive comps and the wholesale segment returning to growth.

“Given the retail structure in Europe (less stores & discounts), management believes it can grow margins going forward; historically Europe has been a key performer for GUESS?,” the analyst pointed out.

North America

However, the global initiatives that have led to expansion in Europe and Asia have had limited impact in North America, where Beder believes there are too many stores, discounters and fashion competitors that have led to an unsustainable model.

“With slightly over 450 doors in North America, the goal is to aggressively close stores to drive North America to break-even or better with 50% of leases due in the next 3 years and 60 stores closing in FY18, we expect a very aggressive focus by management,” the analyst went on to say.

Guess Investors Are Ignoring The Apparel Company's European, Asian Businesses

What A Flood Of Store Closings From Macy's And Others Means For Mall REITs _________ Image Credit: By Eva Rinaldi from Sydney Australia (Gigi Hadid) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons