The Exchange

Guess Beats on Earnings, Shares Take Off

The last quarter was at best an uneven one for clothing retailers, with some, like Abercrombie & Fitch (ANF), struggling mightily and others, such as Gap (GPS), doing fine.

Add Guess (GES) to the latter group, relatively speaking. Shares of the Los Angeles-based apparel and fashion accessories seller jumped 12.85% Thursday on much heavier-than-normal volume after the company exceeded the existing profit and sales estimates. The stock closed at $30.82.

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Guess chart

The move was a sizable one for Guess, ranking as its 21st-best single-session gain back to August 1996, according to FactSet data. It's also the strongest up move since Dec. 1, 2009, when the stock advanced 12.87%.

For the second quarter, Guess earned $44.3 million, up from $42.9 million last year. Adjusted earnings of 52 cents a share were a notable beat, easily topping the consensus estimate of 35 cents. Revenue increased only 0.6% to $639 million from $635.4 million last year, but that was $15 million better than expected. Though North American same-store sales declined 2%, analysts were planning on a drop of more than twice that.

While CEO Paul Marciano said in a press release that Guess was "very encouraged by the improvements in the trends of our North American Retail business in the second quarter," he had less-than-sanguine remarks on operations abroad. "[T]he economic climate in Southern Europe continues to be challenging and we are beginning to see a slowdown in China," he said. "Therefore, although we are encouraged by our overall results in the first half of fiscal 2014, the outlook for consumer spending in Southern Europe and China remains uncertain and we are planning our business accordingly."

Looking ahead, Guess is projecting third-quarter profits of 34 cents to 38 cents a share and sales of $610 million to $620 million. For the year, adjusted earnings should be $1.78 to $1.92 on revenue of $2.56 billion to $2.59 billion. Guess had guided for full-year revenue of $2.57 billion to $2.61 billion and earnings of $1.70 to $1.90 previously.

Short-covering might have contributed to the climb. Though not an overwhelming part of the Guess story — 10.7% of the float was sold short as of July 31 — the short position isn't insignificant either, and it does exceed names such as Gap, Coach (COH) and Ralph Lauren (RL).

Guess has gained 25.6% this year, compared with the 14.9% rise in the S&P 500.

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