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Guess' Focuses on International Expansion: Time to Hold?

Zacks Equity Research

Guess', Inc. GES is well positioned for growth on the back of solid international presence and e-Commerce platform. As a result of such factors, shares of the company have surged 20.9% in the past three months, outperforming the industry’s growth of 4.9%.

Let’s now take a closer look into some of the factors that have been aiding the company’s performance as well as few of the challenges it is dealing with.

Comps Growth & Strong International Presence

The company’s strategic efforts also led to the advancement of comparable store sales (comps) in the Europe, Asia and American Wholesale segments during the first quarter. Guess' has also been undertaking several initiatives to expand its store base in these regions. The company aggressively introduced new stores in Italy, France, Spain, Portugal, UK, Germany, Belgium, Sweden, Turkey and Poland during the first quarter. In addition, management expects to add nearly 60-70 outlets in Europe in fiscal 2018. It also remains on track to boost its business in Asia.

Sturdy e-Commerce Platform

Guess' has been focusing on linking the brick-and-mortar stores, e-Commerce and mobile sales to improve its e-commerce operations. This has enabled customers to reserve merchandise online and pick them up in stores. The company’s well chalked out e-Commerce strategies aided revenue growth across the Europe, Asia and American Wholesale segments during the first quarter of 2018. Going ahead, management remains optimistic about its e-Commerce business.

Headwinds Impacting Performance

The Americas Retail and Licensing segments of the company have been showing weakness of late. Revenues from these segments declined 15% and 9.3% during the first quarter owing to macroeconomic challenges, especially lower consumer spending. In fact, conscious consumer spending has led Guess' to resort to store closures in the U.S. and Canada.

Further, unfavorable currency fluctuations also affect the company’s revenues from the international regions. In fact, management continues to expect unfavorable impact of currency in fiscal 2018 to hurt earnings by 3 cents per share. Also, in the second quarter, currency is expected to negatively impact earnings by 4 cents.

Bottom Line

Given the mixed pros and cons, the company currently carries a Zacks Rank #3 (Hold). Nevertheless, we expect that Guess’ expansion efforts will offset the weakness in North America in the forthcoming periods. Moreover, its online growth initiatives and cost saving efforts are also worth appreciating.

We also note that estimates of the company for the second quarter have remained stable since the past 30 days at 10 cents. The same for the fiscal year 2018 has increased by a penny to 40 cents.

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Better-ranked stocks in the same industry include Hasbro, Inc. HAS Lululemon Athletica Inc. LULU and SodaStream International Ltd. SODA, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hasbro has an average positive earnings surprise of 19% over the past four quarters. It has a long-term earnings growth rate of 11.7%.

Lululemon has an average positive earnings surprise of 5.7% over the past four quarters. It has a long-term earnings growth rate of 12.6%.

SodaStream has an average positive earnings surprise of 103.9% over the past four quarters. It has a long-term earnings growth rate of 7.5%.

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