Guess Provides 'Excellent Opportunity' To Try On A Turnaround Story, Says B Riley FBR

A comeback in denim could fuel significant upside for Guess?, Inc. GES in coming years, a B Riley FBR analyst said in a Monday upgrade note. 

The Analyst

Susan Anderson of B Riley upgraded Guess from Neutral to Buy rating and with a $20 price target. 

The Thesis

When Guess CEO Victor Herrero took over the company in August 2015, his turnaround strategy was to move beyond denim to offer complete outfits; improve the store experience and merchandising; and connect with consumers through celebrity endorsements, Anderson said. (See the analyst's track record here.) 

It appears that Herrero's plan is gaining traction.

While Guess initially failed to capitalize on the retro trend, Google trends are showing an uptick in Guess logo tees, a 90s fashion staple, the analyst said. 

Google Trends data also shows that Guess’ newest endorsers — Camila Cabello for fall/holiday 2017 and Jennifer Lopez for spring 2018 — have been very well received by consumers, according to B Riley FBR. 

“Additionally, we believe consumers are purchasing other products while in the stores. Guess denim is selling well given its higher quality and strong denim trends,” Anderson said. 

The stock’s recent pullback offers an excellent entry point into a turnaround that has already begun to shift, and could offer EPS upside over the next several years, the analyst said. 

Guess' North American profits are expected to improve as the company continues to shutter stores, lower rents, improve cost efficiencies and stabilize sales, Anderson said. The company’s focus of scaling its business in Asia means a significant North American turnaround is nonessential for sales growth, she said. 

“We believe this is an excellent opportunity to get into a turnaround story that has already started to bear fruit." 

Price Action

Guess shares were up 5.53 percent at $15.85 near the end of Monday's trading session. 

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