Guess Inventory Down 40% in 2024. What’s Subsequent?

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

Guess Stock (NYSE: GES), a world retailer of attire and equipment, has skilled a major decline of 40% year-to-date, closing at roughly $14 on December 30. This underperformance is notable compared to the S&P 500 index. Conversely, the inventory of its peer, Gap (NYSE: GAP), has appreciated by 13% over the identical interval. So, why is Guess Inventory underperforming?

In its third-quarter outcomes, Guess reported blended regional efficiency, characterised by energy in European markets and Americas wholesale, offset by declines in North American and Asian retail segments. Regardless of strong total European gross sales, which account for 50% of whole revenues, Guess encountered margin stress as a result of elevated stock ranges and markdowns. This resulted in a diminished working margin and earnings. The repeated downward revisions to steering issued by administration have had a corresponding affect on the corporate’s share worth.

Guess revised its full-year income steering to 7-8% development from a earlier expectation of 9.5% and 11.0% development. It additionally lowered its adjusted EPS outlook to $1.85- $2.00 in comparison with the earlier estimate of $2.42 to $2.70. GAAP EPS is projected between $0.70 and $0.82. These outcomes replicate elevated advertising and marketing investments to assist worldwide growth and the mixing of the rag & bone model. The corporate anticipates GAAP and adjusted working margins between 6.1% to six.4% and 6.2% to six.5%, respectively, for the complete yr 2025. That mentioned, if you need upside with a smoother trip than a person inventory, contemplate the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Guess’ gross sales elevated 13% year-over-year (y-o-y) to round $739 million in Q3, pushed primarily by the addition of New York-based style model Rag & Bone. The retailer’s Q3 revenues grew 79% y-o-y to $99 million within the American Wholesale phase, 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 development in Licensing. The corporate’s adjusted earnings fell 31% y-o-y from the prior yr, aided partly by a discount within the share depend, to 34 cents per share. Its gross margins contracted by 110 bps to 43.6% and its adjusted working margin declined 310 foundation factors to five.8% as a result of decrease gross margin and better SG&A bills.

General, the efficiency of GES inventory in comparison with the index during the last 3-year interval has been lackluster. Returns for the inventory had been 7% in 2021, -9% in 2022, and 18% in 2023. In distinction, the Trefis Excessive High quality (HQ) Portfolio, with a group of 30 shares, is much less risky. And it has outperformed the S&P 500 every year over the identical interval. Why is that? As a gaggle, HQ Portfolio shares supplied higher returns with much less danger versus the benchmark index; much less of a roller-coaster trip as evident in HQ Portfolio efficiency metrics.

We forecast Guess Revenues to be $3 billion for the fiscal yr 2025, up 9% y-o-y. Given our revenues and EPS forecast adjustments, we have now revised Guess Valuation to $18 per share, based mostly on a $1.86 anticipated EPS and a 9.8x P/E a number of for the fiscal yr 2025. The corporate’s inventory seems cheaply priced on the present ranges (Dec 30).

It’s useful to see how its friends stack up. Take a look at how Guess’ Friends fare on metrics that matter. You’ll discover different beneficial comparisons for corporations throughout industries at Peer Comparisons.

[1] Returns as of 12/30/2024
[2] Cumulative whole returns for the reason that finish of 2016

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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.