January 18, 2022

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Why Is Guess (GES) Down 18.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Guess (GES). Shares have lost about 18.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Guess due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Guess?’s Earnings Beat Estimates in Q4, Sales Miss

Guess? Inc. posted fourth-quarter fiscal 2020 results with earnings beating the Zacks Consensus Estimate for the fourth straight time. Also, the top and the bottom line increased year over year. Revenues in the quarter were backed by strength in Europe and licensing businesses.

However, the company refrained from providing guidance for fiscal first quarter ending May 2, and fiscal year ending Jan 30, 2021, given the coronavirus outbreak and its unpredictable impact on the company’s performance. Moreover, management resorted to temporary closures in major regions worldwide.

Quarter in Detail

Guess? posted adjusted earnings of $1.22 per share, which surpassed the Zacks Consensus Estimate of $1.12 and increased 74.3% from the year-ago quarter’s figure. The upside can be attributed to higher revenues and gross margin.

Net revenues amounted to $842.3 million that missed the consensus mark of $851.3 million. However, the top line inched up 0.6% year over year. On a constant-currency (cc) basis, revenues moved up 1.8%.

The company’s gross margin expanded 360 basis points (bps) to 40.2%, owing to increased initial markups (IMUs).

Also, adjusted operating profit came in at $101.7 million, up 32.2% year over year. Adjusted operating margin expanded 290 bps from the year-ago quarter’s figure to 12.1%. The uptick was led by lower logistics costs in Europe along with greater initial markups in Americas Retail and Europe.

Segment Performance

Revenues in the Americas Retail segment declined 4.1% year over year and 4.4% at cc. Retail comp sales, including e-commerce, declined 3% each on a year-over-year basis and at cc due to negative traffic.

Net revenues in the Americas Wholesale segment declined 3% (down 3.8% at cc), thanks to the timing of shipments.

The Europe segment’s revenues increased 13.2% (up 15.8% at cc). Store openings, improvement in wholesale revenues and comps growth boosted the region’s performance. Retail comp sales, including e-commerce, inched up 1% year over year and rose 3% at cc. This marks the 18th successive quarter of positive comps for the European region.

Asia revenues declined 27.7% (down 26.4% at cc). Retail comp sales, including e-commerce, lost 26% (down 25% at cc) due to soft softness across all major markets including China, Korea and Japan.

Licensing revenues increased 22.7%.

Other Updates

The company exited the quarter with cash and cash equivalents of $284.6 million as well as long-term debt and finance lease obligations of $32.8 million. Further, stockholders’ equity was $639.7 million. Net cash provided by operating activities during fiscal 2020 amounted to $197.9 million.

Apart from the accelerated share repurchase program, the company repurchased nearly 6.1 million shares for $118.1 million in fiscal 2020, including repurchases of nearly 0.3 million shares (for $7.5 million) in the fourth quarter.

In view of the coronavirus outbreak, management decided to postpone the announcement of any quarterly cash dividend for first quarter of fiscal 2021.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -115.79% due to these changes.

VGM Scores

Currently, Guess has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Guess has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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