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Guess? Up 24% in 3 Months, Strong European Unit Adds Gleam

Zacks Equity Research

Guess?, Inc. GES gains from consistent top-line growth, backed by sturdy advancements in European operations and growth in the digital realm. This Zacks Rank #1 (Strong Buy) company’s shares have rallied 24.6% in the past three months against the industry’s decline of 6.8%. Let’s take a closer look at the factors adding sheen to this well-known apparel and accessories retailer.



Strong European Unit Boosts Revenues  

Guess? boasts an impressive top-line track record. During the second quarter of fiscal 2020, the top line improved 5.8%, which marks the company’s 12th straight quarter of year-over-year revenue improvement. Solid sales in most regions, especially in Europe, have been favoring the company.

Speaking of the European unit, the region is witnessing consistent growth. The upside can be attributed to gains from store openings, improvements in wholesale revenues as well as comps. Markedly, comps improved for the 16th straight quarter in Europe, when the company reported fiscal second-quarter results.

Going ahead, we expect the European unit to keep fueling the company’s performance. Moreover, management is undertaking growth efforts in this region such as optimizing network, inducing efficiency in sourcing and product development as well as managing costs.
 
Efforts to Boost E-commerce & Cost Structures

Guess?’s e-commerce business is one of its key growth catalysts. In fact, e-commerce growth drove the company’s comps across most regions in the fiscal second quarter.

We note that the company is on track with the digital-first initiative and investing in brand building through various social media platforms. Further, it focuses on linking brick-and-mortar stores, e-commerce and mobile sales to improve online operations. This has enabled customers to reserve merchandise online and pick them up in stores. Guess? is also planning to improve e-commerce operations by undertaking efforts such as better data capturing, improved customer profiling, personalized marketing and relationship management. These efforts are expected to help the company enhance customer base and enrich their experience, which will continue to drive sales.

Additionally, Guess? is striving to develop an efficient cost structure to drive gross margin. In this context, the company is undertaking initial markups or IMU improvement as well as realignment of prices. The impact of these endeavors was reflected in the fiscal first and the fiscal second quarters, wherein the gross margin expanded nearly 50 basis points (bps) and 180 bps, respectively.

Wrapping up, such well-chalked efforts along with robust growth in key market regions are likely to continue bolstering the company’s performance. In fact, management has provided an optimistic view for fiscal 2020 as well as for the fiscal third quarter. That said, Guess? is likely to maintain its position in investors’ good books in the forthcoming periods.

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lululemon athletica LULU has a long-term earnings growth rate of 18.4% and a Zacks Rank #2 (Buy).

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