International Strength to Aid Guess? (GES) in Q3 Earnings
Guess?, Inc. GES is slated to release third-quarter fiscal 2019 results on Nov 28. This leading designer and distributor of lifestyle products delivered a positive earnings surprise of 9.1% in the last reported quarter, and has surpassed the Zacks Consensus Estimate by average of 8.8% in the trailing four quarters.
Guess?, Inc. Price and EPS Surprise
Guess?, Inc. Price and EPS Surprise | Guess?, Inc. Quote
Let’s see what’s in store for the company this time around.
What to Expect?
The Zacks Consensus Estimate for earnings has remained stable in the past 30 days at 16 cents, which reflects a jump of 33.3% from 12 cents per share in the year-ago quarter. Further, the consensus mark for revenues is $603 million, reflecting close to 9% growth from the year-ago quarter.
Solid International Performance – a Key Driver
Robust international performance is one of the key drivers of Guess? The company has long been riding on strength of its Europe and Asia businesses, which have been benefitting from constant store openings and e-commerce growth. These factors helped revenues in Europe surge 22% (up 19% on a constant currency basis) in the second quarter of fiscal 2019. Revenues were fueled by higher comps (including e-commerce), store openings and increase in wholesale revenues. Markedly, comps improved for the 12th straight quarter in Europe. Management’s strategy to improve sales quality and merchandising structure yielded results.
Coming to Asia, sales advanced 32%, while it grew 29% on a currency-neutral basis, with results being especially strong in Greater China and Japan. The upside was led by store openings and solid comps (including e-commerce). Management is committed toward making capital investments to tap into opportunities in these regions in fiscal 2019. Thanks to these factors, the company expects sales in Europe and Asia to rise double digits in fiscal 2019. In fact, many other textile-apparel players like lululemon LULU, Ralph Lauren RL and Columbia Sportswear COLM have been gaining from strong international operations. Coming back to Guess?, international strength clearly gives out positive indications for the quarter to be reported.
Strong Digital Operations
Guess? is on track with its digital-first initiative and has been investing in brand building through social media platforms such as Facebook, Twitter, Instagram and YouTube. The company is also optimistic about its recent partnership with video sharing application, TikTok. Further, the company has been focusing on linking brick-and-mortar stores, e-commerce and mobile sales to improve its online operations. This has enabled customers to reserve merchandise online and pick them up in stores. These efforts are expected to help the company enhance its customer base and enrich their experience, which, in turn, should help it drive sales.
Is all Rosy for Guess?
Unfortunately, Guess? has been posting soft revenues in Americas Retail for quite some time now. This could be attributed to a tough retail environment and soft traffic. Revenues in the Americas Retail unit fell 2% during the second quarter, following a 1.4% dip in the first quarter. Nonetheless, the company is making solid efforts to bring a turnaround to this region and is also witnessing some improvements on that front.
Further, operating margin in Europe declined 200 basis points (bps) in the second quarter, thanks to higher distribution costs from the repositioning of the European distribution center to Venlo. This also led to an increase in the overall SG&A costs of the company. Talking of SG&A costs, it is expected to increase year over year in the third quarter due to higher digital-marketing and advertising costs. Nevertheless, the company has implemented stringent cost control and margin-growth initiatives. Incidentally, the company posted its fifth and third straight quarter of gross and operating margin expansion in second-quarter fiscal 2019. Management remains confident of ending fiscal 2019 on a solid note, wherein it expects to deliver operating margin of 7.5%, backed by continued revenue improvements and cost-containment efforts. Also, management raised its revenues and adjusted earnings per share outlook for fiscal 2019, which keeps us optimistic about the upcoming results.
What the Zacks Model Unveils
Our proven model doesn’t show that Guess?is likely to beat bottom-line estimates this quarter. For this to happen, the stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Though Guess?carries a Zacks Rank #3 (Hold), it has an Earnings ESP of 0.00%, which makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.
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