Guess Stock Down 40% in 2024. What’s Next?

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

Guess Stock (NYSE: GES), a global retailer of apparel and accessories, has experienced a significant decline of 40% year-to-date, closing at approximately $14 on December 30. This underperformance is notable in comparison to the S&P 500 index. Conversely, the stock of its peer, Gap (NYSE: GAP), has appreciated by 13% over the same period. So, why is Guess Stock underperforming?

In its third-quarter results, Guess reported mixed regional performance, characterized by strength in European markets and Americas wholesale, offset by declines in North American and Asian retail segments. Despite robust overall European sales, which account for 50% of total revenues, Guess encountered margin pressure due to elevated inventory levels and markdowns. This resulted in a reduced operating margin and earnings. The repeated downward revisions to guidance issued by management have had a corresponding impact on the company’s share price.

Guess revised its full-year revenue guidance to 7-8% growth from a previous expectation of 9.5% and 11.0% growth. It also lowered its adjusted EPS outlook to $1.85- $2.00 compared to the previous estimate of $2.42 to $2.70. GAAP EPS is projected between $0.70 and $0.82. These results reflect increased marketing investments to support international expansion and the integration of the rag & bone brand. The company anticipates GAAP and adjusted operating margins between 6.1% to 6.4% and 6.2% to 6.5%, respectively, for the full year 2025. That said, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Guess’ sales increased 13% year-over-year (y-o-y) to around $739 million in Q3, driven primarily by the addition of New York-based fashion brand Rag & Bone. The retailer’s Q3 revenues grew 79% y-o-y to $99 million in the American Wholesale segment, 12% y-o-y to $172 million in Americas Retail, 7% y-o-y in Europe to $368 million, 2% y-o-y to $65 million in Asia, and a flat growth in Licensing. The company’s adjusted earnings fell 31% y-o-y from the prior year, aided in part by a reduction in the share count, to 34 cents per share. Its gross margins contracted by 110 bps to 43.6% and its adjusted operating margin declined 310 basis points to 5.8% due to lower gross margin and higher SG&A expenses.

Overall, the performance of GES stock compared to the index over the last 3-year period has been lackluster. Returns for the stock were 7% in 2021, -9% in 2022, and 18% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it 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.

We forecast Guess Revenues to be $3 billion for the fiscal year 2025, up 9% y-o-y. Given our revenues and EPS forecast changes, we have revised Guess Valuation to $18 per share, based on a $1.86 expected EPS and a 9.8x P/E multiple for the fiscal year 2025. The company’s stock appears cheaply priced at the current levels (Dec 30).

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 12/30/2024
[2] Cumulative total returns since the end of 2016