4 Reasons Why You Should Buy Guess? (GES) Post Q4 Earnings
Guess?, Inc. GES has seen its shares surge as much as 48.1% since it reported solid results for fourth-quarter fiscal 2018, which was followed by an impressive outlook. Well, this has helped this Zacks Rank #1 (Strong Buy) stock more than double in a span of a year, easily crushing the industry’s 32.2% growth. On that note, let’s take a sneak peek into Guess?’s sturdy results, along with the other factors that have been driving this renowned lifestyle brand.
Superb Q4 & Outlook Drive Stock, Estimates Trend North
Guess? retained its sturdy earnings surprise history in the fourth quarter of fiscal 2018, wherein both top and bottom lines grew year over year, alongside surpassing the Zacks Consensus Estimate. Notably, this marked the company’s fifth straight quarter of earnings beat, while the top line advanced year over year for the sixth time in a row. While earnings were backed by solid sales and enhanced margins, sales were fueled by continued strength in Europe and Asia. Further, gross margin expanded on the back of lower markdowns and rents; greater IMUs and enhanced sales. Operating margin also grew owing to overall expense leverage.
Guess? remains focused on exploring opportunities for growth in the European and Asia regions. Additionally, the company has been striving to improve performance in the Americas and has undertaken several initiatives to reduce costs and enhance margins. Management also expects to reap benefits from the recent tax reforms, as it will likely reduce the effective tax rate and raise flexibility to repatriate overseas cash. Markedly, for fiscal 2019, management expects consolidated net revenue growth in the range of 7-8%. On a constant-currency basis, consolidated net revenues are expected to grow 5-6%. Earnings per share for fiscal 2019 are estimated in the range of 86-98 cents, in comparison with 70 cents recorded in fiscal 2018. The solid results and outlook was an encouragement for analysts, as evident from the improvement in the Zacks Consensus Estimate for the current quarter as well as the fiscal.
Europe & Asia Strength
As mentioned above, European and Asia are key drivers of Guess? Notably, these regions have been delivering superb results for quite some time now, courtesy of constant store openings and e-commerce growth — ultimately leading to comps growth. These factors helped revenues in Europe surge 40% (up 24% on a constant currency basis) in fourth-quarter fiscal 2018. Revenues were also backed by management’s strategy to improve sales quality and merchandising structure. Moving to Asia, sales advanced 40% here as well, while it grew 33% on a currency-neutral basis. Management remains committed toward making further capital investments in these regions in fiscal 2019, as these regions offer robust opportunities. Thanks to these factors, the company expects sales in Europe and Asia to continue rising in double-digits, while margins are also expected to expand in fiscal 2019.
Focus on Cost-Cutting Initiatives
In an effort to augment profits, Guess? has implemented stringent cost control and margin-growth initiatives, especially for North American operations. Guess? is also executing its supply chain initiatives by way of product cost improvements. In this respect the company strives to develop long term partnerships with high-quality supplier in order to gain operating scale efficiencies.
Digital Endeavors Bode Well
Guess? relies on social networking sites like Facebook FB and Twitter TWTR to advertise and market products. The company has also been focusing on linking brick-and-mortar stores, e-commerce and mobile sales to improve its online operations. This has enabled customers to reserve merchandise online and pick them up in stores. In fact, e-commerce growth in the Europe and Asia segments played a major role in augmenting the company’s comps and top line. Management stated that e-commerce business in Europe is gradually approaching the size of its American e-commerce operations. As for Asia, digital sales in China have been a major driver as the company’s alliance with Tmall is growing. Apart from this, the company is also making constant investments in the digital and social media space, like Weibo and WeChat. These efforts are expected to help Guess? enhance customer base and enrich their experience, which in turn should help it continue drive sales.
All said, we believe that Guess? is firmly placed to reach greater heights and be a fruitful bet.
Looking for More? Check These Trending Apparel Picks
PVH Corp. PVH, with a robust earnings surprise history also sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ralph Lauren RL, with a long-term earnings growth rate of 10.2% carries the same Zacks Rank as PVH Corp.
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