More Room For Growth in Guess’ Stock?

[Note: Guess’ FY’22 ended on Jan 29, 2022]

Guess stock (NYSE: GES), a retailer that designs, markets, distributes, and licenses apparel and accessories for men, women, and children, grew roughly 27% in the last six months  – growing from about $18 to around $23 currently, outperforming the S&P500, which rose only 4%. We expect the stock to correct, after the recent big runup in the share price. As a general protective move to shore up inventory, the retailer ordered products earlier than normal to deal with supply chain headwinds. So far in FY 2023 (year ending Jan 2023), the strategy seems to have worked, as the company has been able to deliver more products to wholesalers due to its accurate acquisition of enough products. Still, the foreign currency fluctuations (FX) are definitely a drag on the company and we expect the FX headwinds to continue this year, also. To add to this, the retailer’s bottom line has also been volatile in the first nine months of FY 2023.

In the first three quarters of FY 2023, the company’s sales increased 4% year-over-year (y-o-y) to $1.87 billion. On a constant currency basis, sales would have increased roughly 14%. Unfortunately, foreign currency fluctuations negatively affected sales to the tune of $170.1 million. On the bottom line, the company’s net income shrank from $102.9 million in the first nine months of 2021 to $53.8 million in the same time of 2022. This was driven in large part by a 2.5% decline in the company’s gross profit margin.

We forecast Guess Revenues to be $2.6 billion for the fiscal year 2023, up 2% y-o-y. Looking at the bottom line, we now forecast earnings per share to come in at $2.37. Given the changes to our revenues and EPS forecast, we have revised Guess Valuation to $21 per share, based on a $2.37 expected EPS and a 8.7x P/E multiple for the fiscal year 2023. That said, the company’s stock appears modestly expensive at the current levels, with our valuation at a 5% discount from the current market price.

For the full year 2023, the company is now expecting revenue growth of nearly 2% in U.S. dollars and about 10.5% in constant currency. It also expects full year operating margin of about 9.7% and full year adjusted EPS of $2.35. For the fourth quarter, the retailer assumes U.S. dollar sales to decline about 3.5%, but increase 3.5% in constant currency. In addition, it expects fourth quarter operating margin of about 13.2% and adjusted EPS of $1.32.

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[1] Month-to-date and year-to-date as of 1/17/2023
[2] Cumulative total returns since the end of 2016