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European & Asian Business to Fuel Guess? (GES) in Q3 Earnings

Zacks

Guess?, Inc. GES is slated to release third-quarter fiscal 2018 results on Nov 21. The question lingering in investors’ minds is, whether this apparel and accessories designer will be able to deliver a positive earnings surprise in the quarter to be reported. Well, the company’s bottom line has surpassed the Zacks Consensus Estimate in the past two quarters. Let’s see how things are shaping up prior to this announcement.

Guess?, Inc. Price and EPS Surprise

Guess?, Inc. Price and EPS Surprise | Guess?, Inc. Quote


What to Expect?

The current Zacks Consensus Estimate for the quarter under review has remained stable over the past 30 days at 11 cents, which is in line with the year-ago figure. Further, analysts polled by Zacks expect revenues of $566 million, up 5.6% from the year-ago quarter.

Factors at Play

Guess? is likely to continue benefiting from its robust performance in Europe and Asia. Notably, the company has been witnessing solid sales and margin growth in these regions for nearly a year now. Evidently, European revenues surged 19% (on a currency-neutral basis) in the second quarter of fiscal 2018, while revenues in Asia were up 17%. Results in both regions were fueled by higher comparable store sales (comps) (including e-commerce) and store openings, while European sales also gained from constant efforts of Guess? to enhance sales quality and merchandise organization. Moreover, the operating margins in Europe and Asia continued to expand, courtesy of stringent cost-control efforts, mainly in supply chain.


Strength in these regions and developing e-commerce has enabled Guess? to achieve year-over-year top line growth for four straight quarters now. This has also helped Guess? surge 41.3% this year, as against the industry’s dip of 2.3%. Further, the company remains on track to solidify its European and Asian businesses, as evident from its store-opening plans. While the company’s U.S. retail business continues to face challenges like soft traffic and intense promotions from evolving consumer preferences, Guess? remains focused on reducing its U.S. footprint by undertaking store closures. Also, the company is making strong efforts to link the brick-and-mortar stores, e-commerce and mobile sales to improve e-commerce operations. This has enabled customers to reserve merchandise online and pick them up from stores.

We believe that all these factors, along with focus on cost curtailment and supply-chain enhancement are likely to drive Guess? in the quarter to be reported. Incidentally, management projects currency-neutral revenues to advance in a range of 2-4% in the third quarter, while adjusted earnings are envisioned in a band of 8 to 11 cents per share.

What the Zacks Model Unveils?

Our proven model shows that Guess? may beat earnings estimates because it has the right combination of two key components.

Zacks ESP: Guess? currently has an Earnings ESP of +1.47%. This is because the Most Accurate estimate of 12 cents is a notch higher than the Zacks Consensus Estimate. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Guess? currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. The combination of the company’s Zacks Rank #3 and a positive ESP make us reasonably confident of a positive earnings beat.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Zumiez Inc. ZUMZ has an Earnings ESP of +0.69% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

NIKE, Inc. NKE has an Earnings ESP of +2.56% and carries a Zacks Rank #3.

PVH Corp. PVH has an Earnings ESP of +0.10% and carries a Zacks Rank #3.

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