Guess? (GES) Hurt by Soft Americas Retail Unit & Cost Woes
Guess? Inc. GES is witnessing a dynamic macroeconomic environment, which has been hurting its Americas retail business. The apparel and accessories company is battling a persistent rise in costs. Unfavorable foreign currency rates are a concern.
The Zacks Rank #5 (Strong Sell) company has dropped 0.7% in the past three months against the industry’s growth of 19.7%.
Let’s delve deeper.
Soft Americas Retail Unit Hurts
Guess? is witnessing persistent weakness across its Americas retail business amid a dynamic macroeconomic environment. The trend continued in the third quarter of fiscal 2024, with revenues in the Americas Retail segment falling 7% year over year on softness in customer traffic amid a soft consumer spending environment. Management witnessed contractions across all major categories, like women's and men's apparel and accessories, thanks to drab customer traffic. Continued weakness in the Americas Retail business is likely to remain a threat to the top-line growth.
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Cost Woes Stay
Rising operating costs and expenses are major concerns for Guess?. In third-quarter fiscal 2024, adjusted SG&A increased 10% to $233 million. The rise in performance-based compensation remained a headwind. In addition, management witnessed inflationary pressures on its cost structure. Escalated selling expenses across retail stores and investments in infrastructure led to a rise in costs.
Currency Risks Pose Threat
The company’s international presence exposes it to the risk of adverse currency fluctuations. Unfavorable currency rates may affect the company’s net revenues, operating income and earnings. In the third quarter of fiscal 2024, unfavorable foreign currency adversely impacted adjusted operating profit by $7 million and the adjusted operating margin by 120 basis points.
Lowered View
Guess? is operating in a volatile shopping environment globally, stemming from geopolitical issues and reduced consumer confidence. Considering these factors, management lowered its fiscal 2024 outlook. Guess? anticipates revenues to grow in the range of 1.8-2.4% compared with the earlier range of 2.5-4% growth. The adjusted operating margin is likely to be 8.9-9.1% compared with 9-9.4% expected earlier. Management expects adjusted earnings per share (EPS) in the band of $2.67-$2.74 for fiscal 2024. The company had earlier projected adjusted EPS in the band of $2.88-$3.08.
Wrapping Up
Guess? is benefiting from a focus on three key factors, which include solid global brand awareness and ongoing momentum, strength in its highly-diversified business model across geographies, product categories and distribution channels and an impressive entrepreneurial culture. The company is on track to progress in its customer-centric initiatives, including omnichannel capabilities and advanced data analytics and customer segmentation. However, let’s see if these upsides can help GES stay afloat amid such hurdles.
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