Guess? Inc. (GES)


Guess? Inc.'s (GES) fourth quarter and fiscal 2012 earnings missed year-ago earnings by 5.4% and 1.9%, respectively. Severe austerity measures taken by the European government to combat the debt crisis in the region resulted in reduced spending by consumers there.

Though this was offset by the slight increase in per capita income of the North American region, operating margin shrank, owing to higher SG&A as well as promotional activities. Same-store sales also declined in the quarter. In the wholesale segment, reorders for the fall collections as well as spring/summer orders also missed the mark.

Though the valuation on a price-to-book basis looks attractive (trailing 12-month ROE of 25.9%, well above the industry average), our six-month target price of $30.00 per share equates to about 10.0x our earnings estimate for 2012. We retain our Underperform recommendation.

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