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CFRA: 3 Reasons To Remain Cautious On Guess Following 20% Earnings Pop

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CFRA: 3 Reasons To Remain Cautious On Guess Following 20% Earnings Pop

Guess?, Inc. (NYSE: GES) shares soared more than 20% Thursday following a big second-quarter earnings beat.

A CFRA analyst said Thursday that investors have three reasons to remain cautious. 

The Analyst

Camilla Yanushevsky reiterated a Hold rating on Guess and raised the price target from $14 to $16.

The Thesis

Guess reported second-quarter non-GAAP EPS of 38 cents on revenue of $683.2 million. Both numbers topped consensus analyst estimates of 29 cents and $673.8 million, respectively.

Revenue was up 9% from a year ago on a constant-currency basis.

Looking ahead, Guess guided for fiscal 2020 revenue growth of between 3% and 3.5% on EPS of between $1.28 and $1.36.

The EPS guidance also came in ahead of a consensus estimate of $1.26.

The second-quarter numbers were impressive enough for CFRA to raise its price target, but Yanushevsky said Guess still has several obstacles ahead.

“GES raised guidance (reflective of $0.13/share benefit from accelerated repurchase program, representing about 20% outstanding shares) and announced that co. expects to cut tariff risk from China production into U.S. to 12%, which is lower than peers and we see as a positive,” the analyst said in a Thursday note. 

The following three headwinds create risk for Guess looking forward, she said: 

  • The rise of the “athleisure” trend.
  • Growing competition from American Eagle Outfitters (NYSE: AEO), Abercrombie & Fitch Co. (NYSE: ANF) and Levi Strauss & Co. (NYSE: LEVI).
  • Falling denim price points due to lackluster demand.

The stock closed Thursday's session higher by 20.48% at $18.12. 

Benzinga’s Take

Guess investors had reason to celebrate on Thursday given the big earnings beat, but pricing pressures and lack of demand are difficult trends to overcome in the long-term. Guess shares are still down more than 20% overall in the past five years, which is indicative of the secular headwinds the business is facing.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links: 

New Guess CEO Outlines Plans For The Future, Eyes Product Expansion In Denim

Cramer Likes Levi's Stock, Just Not At Current Levels

Latest Ratings for GES

DateFirmActionFromTo
Mar 2020B. Riley FBRMaintainsBuy
Mar 2020Cowen & Co.DowngradesOutperformMarket Perform
Mar 2020B. Riley FBRMaintainsBuy

View More Analyst Ratings for GES
View the Latest Analyst Ratings

 

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