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4 Reasons Why You Should Add Guess? Stock to Your Portfolio

Zacks

Guess?, Inc.’s GES stock has been scaling up the charts, thanks to its focus on strategic growth initiatives, which have also helped the company put up an impressive past record. Well, this apparel and accessories provider has rallied a solid 82.4% in a year, easily outpacing the industry’s growth of 46%. So, let’s take a closer view of the factors that have spurred investors’ confidence in this Zacks Rank #2 (Buy) stock, which is most likely to keep its spectacular show on. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



Strength in Europe & Asia – Major Drivers


Guess? has been generating solid revenues from its Europe and Asia businesses. These regions have been delivering superb results for quite some time now, courtesy of constant store openings and e-commerce growth. Such initiatives are ultimately leading the company to achieve positive comps growth. These factors helped revenues in Europe to surge 24.2% (up 9.1% on a constant currency basis) in the first quarter of fiscal 2019. Markedly, comps improved for the 11th straight quarter in Europe. Moving to Asia, sales advanced 32.6%, while it grew 25.1% on a currency-neutral basis. In fact, Asia also witnessed its sixth straight quarter of operating margin growth. Management is committed toward making capital investments to tap into the bountiful opportunities in these regions in fiscal 2019. Thanks to these factors, the company expects sales in Europe and Asia to continue rising in double-digits in the second quarter.

Robust Digital Operations

Guess? relies on social networking sites like Facebook FB and Twitter TWTR to advertise and market its products. The company has also been focusing on linking brick-and-mortar stores, e-commerce and mobile sales to improve its online operations. This enables customers to reserve merchandise online and pick them up in stores. In fact, e-commerce growth in the company’s Europe and Asia segments played a major role in augmenting the company’s comps and top-line. Further, the company is on track with expanding digital capabilities, evident from its recently announced plans to launch the concept of artificial intelligence across its stores, through partnership with Alibaba’s BABA FashionAI project. These efforts are expected to help the company enhance its customer base and enrich their experiences, which, in turn, should help it continue driving sales.

Cost-Saving Initiatives

In an effort to augment profits, Guess? implemented stringent cost control and margin-growth initiatives, especially for North American operations. Guess? is also executing its supply-chain initiatives through product cost improvements. In this respect, the company strives to develop long-term partnerships with high-quality suppliers in order to gain operating scale efficiencies.

Q1 Retains Impressive Past Record, Outlook Fuels Estimates

In first-quarter fiscal 2019, Guess?’s top and bottom lines grew year over year for the fourth and seventh consecutive quarter, respectively. While earnings were backed by solid sales and enhanced gross margin, sales were fueled by continued strength in Europe and Asia. Further, gross margin expanded on the back of lower markdowns and rents, greater IMUs, and enhanced sales. Guess? remains focused on exploring opportunities for growth in the European and Asian regions. Additionally, the company has been striving to improve its performance in the Americas and has undertaken several initiatives to reduce costs and enhance margins.

This encouraged management to raise its outlook for fiscal 2019. It now expects net revenue growth in the range of 8.5-9.5%. Further, adjusted earnings per share for fiscal 2019 are estimated in the range of 88-99 cents. These factors along with a favorable view for the second quarter have boosted the Zacks Consensus Estimate for the second quarter and fiscal 2019. Earnings estimates for the second quarter and fiscal 2019 have risen from 31 cents to 33 cents and from $1.00 to $1.01, respectively, over the past 60 days.

All said, we believe that Guess? is firmly placed to reach greater heights and be a fruitful bet.

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