VALUATION HIGHLIGHTS

1. European Operations constitute 42% of the Trefis price estimate for Guess?'s stock.
2. North American Retail constitutes 19% of the Trefis price estimate for Guess?'s stock.
3. Asian Operations constitute 8% of the Trefis price estimate for Guess?'s stock.

WHAT HAS CHANGED?

1. Guess Q2 Snapshot

Guess reported Q2 fiscal 2025 results with revenues increasing 10% year-over-year (y-o-y) to $733 million. The company delivered an operating margin of 6.5% and adjusted operating margin of 5.2%. GAAP loss per share was $0.28, while adjusted EPS was $0.42.

Note: Guess' FY'24 ended on February 3, 2024. Q2 FY'25 refers to the quarter that ended on August 3, 2024.

2. Guidance

Guess lowered its full fiscal year 2025 outlook, now expecting revenue growth between 9.5% and 11.0% in U.S. dollars. The company anticipates GAAP and adjusted operating margins between 7.2% and 7.7% and 7.3% and 7.8%, respectively. GAAP EPS is projected between $1.92 and $2.14, with adjusted EPS between $2.42 and $2.70. The results reflect increased marketing investments to support international expansion and the integration of the recently acquired Rag & bone brand.

BUSINESS SUMMARY

Guess is a specialty retailer that designs, markets, distributes, and licenses one of the world's leading lifestyle collections of contemporary apparel and accessories for men, women, and children. Some of the company's most popular brands include GUESS, G by GUESS, and MARCIANO. Guess's core customers are style-conscious customers between the ages of 18 and 32. At the end of fiscal 2024, the company directly operated 1,002 retail stores in the Americas, Europe, and Asia. The Company's partners operated 551 additional retail stores worldwide.

SOURCES OF VALUE

European segment is one of the largest contributors to the company's stock price

Guess' profitability in the European wholesale business is currently growing, which is evident from the fact that despite not growing the number of wholesale dealers significantly over the past year, the revenues from the wholesale business kept growing. Going forward, we expect European business revenues to reach around $1.9 billion by the end of our forecast period as the company expands in markets such as Germany. However, if Guess's European revenues increase to over $2.3 billion by the end of the Trefis forecast period driven by aggressive expansion in lucrative markets, there could be a 15% upside to our price estimate for Guess.

KEY TRENDS

Foot traffic decline in the U.S. troubling stores

Due to a lack of footfall in the brick-and-mortar stores, Guess had been suffering in the Americas, specifically in North America, for quite a few years. Hence, the company is gradually trying to reduce its footprint and increase its profitability in the region. Now, the Americas contribute over 33% to Guess' total revenues. The management plans on reducing this contribution to around 25% in the future, and it plans on achieving a 7.5% overall long-term operating margin in the Americas. To achieve these goals, the company is creating a better balance between the American retail and wholesale businesses, while closing stores, improving its product offerings, and building a stronger online presence through celebrity endorsements, marketing, and promotions.

Susceptibility to currency fluctuations

Guess earns close to 67% of its revenues from outside North America (as of FY 2024), and hence, its growth is highly susceptible to currency fluctuations. Though this is something the company cannot control, it remains a significant threat.