Up 14% This Year, Why Is Guess Stock Outperforming?

[Note: Guess’ FY’24 ended on Feb 3, 2024]

Guess Stock (NYSE: GES), a retailer that designs, markets, distributes, and licenses apparel and accessories for men, women, and children, has increased 14% year-to-date to around $27, outperforming the S&P500, which grew about 9% over the same period. Guess stock has been up lately due to an upbeat Q4 earnings report and partly supported by the acquisition of Rag & Bone into its portfolio. Guess and global brand management firm WHP Global agreed to acquire New York-based fashion brand Rag & Bone. The acquired company will continue working independently. Guess will own all of the operating assets but will share 50% of the brand value with WHP Global, paying it royalties for the use of the brand. This is the company’s first acquisition in its history.

Guess has done well in a challenging macroeconomic context. Guess’ sales increased 9% year-over-year (y-o-y) to around $891 million in Q4. The retailer’s Q4 revenues grew 44% y-o-y in the American Wholesale segment, 18% y-o-y in Asia, 9% y-o-y in Europe, 15% growth in Licensing, and 1% y-o-y in Americas Retail.  The company’s adjusted earnings rose 16% y-o-y from the prior year, aided in part by a reduction in the share count, to $2.01 per share. Its gross margins expanded by 120 bps to 45.4% and its adjusted operating margin was up 150 bps to 14.6%. For fiscal 2025, the company expects 11.5% to 13.5% y-o-y growth in revenues. The company also plans to generate adjusted operating margin between 7.5% and 8.5% and adjusted earnings per share of $2.56 to $3.00 in FY’25. This outlook includes the benefits of the Rag & Bone integration.

GES stock has seen little change, moving slightly from levels of $25 in early January 2021 to around $26 now, vs. an increase of about 40% 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 11% 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 TM, 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?

We forecast Guess Revenues to be $3.1 billion for the fiscal year 2025, up 13% y-o-y. Looking at the bottom line, we now forecast earnings per share to come in at $2.86. Given our revenues and EPS forecast changes, we have revised Guess Valuation to $32 per share, based on a $2.86 expected EPS and an 11.1x P/E multiple for the fiscal year 2025. That said, the company’s stock appears cheaply 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 5/12/2024
[2] Cumulative total returns since the end of 2016