Game For Higher Returns? Invest In Guess? (GES) Stock Now

Guess', Inc. (NYSE:GES) is certainly one of the must-haves for one’s portfolio, given its stupendous bull run over the past year. Backed by strength in Europe and Asia, among other factors, this Zacks Rank #1 (Strong Buy) stock has soared 97.1% in a year, crushing the industry’s rally of 20.4%. In fact, the renowned lifestyle brand has gained 31.2% in a span of just five days, courtesy of its robust fourth-quarter fiscal 2018 results and outlook.

So, let’s delve deeper into the factors that have been driving this California-based company, which possesses a long-term earnings growth rate of 17.5%, underscoring its solid ongoing prospects.

Strength in Europe & Asia – Major Drivers

Guess? has mainly been riding on sturdy Europe and Asia businesses. Notably, these regions have been delivering superb results for quite some time now, courtesy of constant store openings and e-commerce growth – ultimately leading to comps growth. These factors helped revenues in Europe surge 40% (up 24% on a constant currency basis) in fourth-quarter fiscal 2018. Revenues were also backed by management’s strategy to improve sales quality and merchandising structure. Moving to Asia, sales advanced 40% here as well, while it grew 33% on a currency-neutral basis. In fact, Asia also witnessed its fifth straight quarter of operating margin growth. Management stated that it invested most of its capital toward Europe and Asia in fiscal 2018, given the outstanding returns from these regions. Also, it remains committed toward making further capital investments in these regions in fiscal 2019, as these regions offer robust opportunities. Thanks to these factors, the company expects sales in Europe and Asia to continue rising in double-digits, while margins are also expected to expand in fiscal 2019.

Solid Focus on Digital Growth

Guess? relies on social networking sites like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) to advertise and market products. The company has also been focusing on linking brick-and-mortar stores, e-commerce and mobile sales to improve its online operations. This has enabled customers to reserve merchandise online and pick them up in stores. In fact, e-commerce growth in the Europe and Asia segments played a major role in augmenting the company’s comps and top line. Management stated that e-commerce business in Europe is gradually approaching the size of its American e-commerce operations. As for Asia, digital sales in China have been a major driver as the company’s alliance with Tmall is growing. Apart from this, the company is also making constant investments in the digital and social media space, like Weibo and WeChat. These efforts are expected to help Guess? enhance customer base and enrich their experience, which in turn should help it continue drive sales.

Fortifying Store Base

Guess? has been strongly concentrated on undertaking store openings in its profitable European and Asian regions. Incidentally, these store openings have been boosting the company’s sales for a while now and remain a major driver for the forthcoming periods. During the fourth quarter, the company introduced 15 net directly operated stores in Europe across Italy, France, Spain, Portugal, Switzerland, Belgium, Netherlands, Russia and Poland. Also, it plans to make 60 more store openings in Europe in fiscal 2018. In Asia, Guess? opened 25 new stores in the fourth quarter, which included 16 directly operated outlets in China.

Guess?, Inc. Price and Consensus

Guess?, Inc. Price and Consensus | Guess?, Inc. Quote

Splendid Earnings History & Outlook Boost Estimates

Guess retained its impressive earnings surprise record in the fourth quarter of fiscal 2018, wherein both top and bottom lines grew year over year and surpassed the Zacks Consensus Estimate. Notably, this marked the company’s fifth straight quarter of earnings beat, while the top line advanced year over year for the sixth quarter in a row. While earnings were backed by solid sales and enhanced margins, 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. Operating margin also grew owing to overall expense leverage.

Guess? remains focused on exploring opportunities for growth in the European and Asia regions. Additionally, the company has been striving to improve performance in the Americas and has undertaken several initiatives to reduce costs and enhance margins. Management also expects to reap benefits from the recent tax reforms, as it will likely reduce the effective tax rate and raise flexibility to repatriate overseas cash. Markedly, for fiscal 2019, management expects consolidated net revenue growth in the range of 7-8%. On a constant-currency basis, consolidated net revenues are expected to grow 5-6%. Earnings per share for fiscal 2019 are estimated in the range of 86-98 cents, in comparison with 70 cents recorded in fiscal 2018. Markedly, the consensus mark for the fiscal has gone up by 8 cents to 96 cents since the stellar quarterly outcome.

Given the aforementioned factors and Guess?’s strong cost-saving efforts, we believe that the company is set to attain greater heights and help its investors rake in solid returns in future.

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