Guess? (GES) Exhibits Bright Prospects, Headwinds Persist
Guess? Inc. GES remains committed to its six key strategies and has been making significant progress with regard to each of them. The company’s core strategies include organization and culture, functional capacities, brand relevance with consumer groups, customer focus, product brilliance and an international footprint. The company has been focused on a brand-elevation strategy that includes enhancing product quality, visual merchandising and boosting customers’ shopping experiences across stores and online.
Guess? remains committed to improving its customers’ experiences by implementing various upgrades to its store and e-commerce infrastructure to increase customer conversion. For instance, it recently completed its store infrastructure upgrades, including the implementation of mobile point-of-sale check-out, Salesforce Customer 360 and a real-time inventory and sales dashboard.
GES is also on track to boost its product life cycle management and supply chain tracking systems globally to accommodate future growth and improve operational efficiencies.
Guess? has been witnessing strength in its businesses across Europe and Asia, supported by a healthy demand environment in retail end markets. Of late, increased consumer activity in South Korea and the Greater China region has also been driving the performance of its Asia segment.
In first-quarter fiscal 2024, the company’s Europe segment’s revenues increased by 2% year-over-year, while that of the Asia segment jumped by 26%. For fiscal 2024, GES anticipates revenues to grow by 2-4%, higher than its earlier projection of 1-3%.
Further, it has also been streamlining its cost structure to boost its operating model and lower operating expenses. GES expects to reinvest these cost savings in enhancing marketing and omnichannel capabilities.
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In the past three months, this Zacks Rank #3 (Hold) stock has gained 2.8% against the industry’s decline of 2.8%.
Despite the positives, Guess? has been grappling with weakness across its Americas retail business. In the fiscal first quarter, revenues from its Americas retail segment dipped 14% on a year-over-year basis. The decline was attributable to reduced customer traffic and conversion amid a tepid consumer spending environment.
Although inflationary pressure is easing, GES anticipates increased interest rates to affect consumer spending in the near term. For the second quarter of fiscal 2024, it expects its revenues to be within the break-even level to 1.5% decline range.
Also, escalating costs and expenses have been hurting its margins and profitability of late. In the fiscal first quarter, its gross margin contracted 90 basis points year-over-year to 40.7%. Notably, adjusted selling, general and administrative costs increased 12% to $231 million, owing to higher store selling expenses and increased investments in its infrastructure in Europe. Its adjusted operating margin contracted to 0.3% from 7% due to escalated costs, reduced government subsidies and currency headwinds.
3 Key Picks
Some better-ranked stocks are Nomad Foods Limited NOMD, Duluth Holdings Inc. DLTH and Lululemon Athletica Inc. LULU. While NOMD carries a Zacks Rank #1 (Strong Buy), DLTH and LULU, each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nomad Foods manufactures and distributes frozen foods. The company has a trailing four-quarter earnings surprise of 8.5%, on average. The Zacks Consensus Estimate for NOMD’s current financial year sales suggests growth of 8%, while earnings are likely to decline 3.4% from the prior-year reported numbers.
Duluth Holdings is a provider of casual wear, workwear and accessories for men and women. The Zacks Consensus Estimate for DLTH’s current financial-year sales suggests growth of 0.5% while earnings are likely to fall 14.3%, from the corresponding year-ago reported figures.
Lululemon Athletica specializes in manufacturing athletic apparel, footwear and accessories. The company has a trailing four-quarter earnings surprise of 9.9%, on average. The Zacks Consensus Estimate for LULU’s current financial year sales suggests growth of 17.1%, while earnings are likely to grow 18.4% from the prior-year reported numbers.
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