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Guess?: Will 1Q Earnings Beat Or Miss?

Zacks Equity Research

Guess? Inc.(GES) is set to report its first-quarter fiscal 2014 results on May 30. In the last quarter, the company posted a positive earnings surprise of 10.5%. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

In the fourth quarter of fiscal 2013, the company’s earnings of 95 cents were at the higher end of the company’s guidance range of 85 cents to 95 cents, but were lower than the year-ago quarter by 9.5%, primarily due to lower consumer demand and currency headwinds. Weak business in the licensing segment was also a dampener.

Moreover, management hinted that international losses could increase due to higher costs related to incremental marketing expenses. Macroeconomic headwinds are also expected to adversely affect comps during the first quarter. Promotional expenses in North America, currency headwinds and lower mix of royalties are expected to restrict earnings in the future.

Earnings Whispers?

Our proven model does not conclusively show that Guess? is likely to beat earnings this quarter. That is because a stock needs to have both a positive earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  That is because the Most Accurate Estimate stands at 6 cents while the Zacks Consensus Estimate is lower at 8 cents. That is a difference of -25.00%.

Zacks Rank #4 (Sell). Guess? currently holds a Zacks Rank #4 (Sell) which lowers the predictive power of ESP because the Zacks Rank #4 when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into  earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Flower Foods Inc (FLO), Earnings ESP of +2.86% and a Zacks Rank #1 (Strong Buy)

Harris Teeter Supermarkets Inc (HTSI), Earnings ESP of +1.47% and a Zacks Rank #2 (Buy)

Roundy's Inc. (RNDY), Earnings ESP of +3.03% and a Zacks Rank #2 (Buy)

Read the Full Research Report on GES

Read the Full Research Report on HTSI

Read the Full Research Report on FLO

Read the Full Research Report on RNDY

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