Flat Since The Beginning of 2023, What’s Next For Guess Stock?

[Note: Guess’ FY’23 ended on Jan 28, 2023]

Guess Stock (NYSE: GES), a retailer that designs, markets, distributes, and licenses apparel and accessories for men, women, and children, is almost flat in the last twelve months at around $23, underperforming the S&P500, which grew about 20% over the same period. Guess is cheap relative to its historical performance, which reflects the near-term outlook. Guess stock has been volatile lately due to a disappointing Q3 earnings report and weak guidance. The retailer’s revenue growth is robust in Europe but is facing challenges in the Americas and Asia. In light of its brand issues and declining store sales in the Americas, Guess’ outlook is uncertain, given how much its guidance has changed. For fiscal 2024, the company previously expected a 2.5% to 4.0% growth whereas it now expects 1.8% to 2.4% growth. It also lowered its guidance for its adjusted operating margin from 8.9%-9.3% to 8.9%-9.1%. The company’s adjusted diluted EPS is now projected at $2.67 to $2.74 in FY 2024.

Guess stock has seen little change, moving slightly from levels of $25 in early January 2021 to around current levels now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Overall, the performance of GES stock with respect to the index has been lackluster. Returns for the stock were 5% in 2021, -13% in 2022, and 10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that GES underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GES face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Guess’ sales increased a modest 3% year-over-year (y-o-y) to around $651 million. American retail sales were down 7%, while wholesale sales were up 4% y-o-y, and Europe grew a solid 6% in Q3. The company’s adjusted earnings rose 11% y-o-y from the prior year, aided in part by a reduction in the share count, to $0.49 per share. Its adjusted operating margin was 8.9%, down 20 basis points (bps) from the previous  year. However, gross margins expanded by 220 bps to 44.7%. It should be noted that the company’s Americas region accounts for almost 31% of the total revenues (of which Americas Retail constitutes 23% of total revenues). Any further weakening in this region could be a warning sign in the upcoming holiday season.

We forecast Guess Revenues to be $2.8 billion for the fiscal year 2024, up 3% y-o-y. Looking at the bottom line, we now forecast earnings per share to come in at $2.95. Given our revenues and EPS forecast changes, we have revised Guess Valuation to $23 per share, based on a $2.95 expected EPS and a 7.8x P/E multiple for the fiscal year 2024. That said, the company’s stock appears appropriately priced at the current levels.

It is helpful to see how its peers stack up. Check out how Guess’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 1/15/2024
[2] Cumulative total returns since the end of 2016