Shares of Guess? (NYSE:GES) fell nearly 5.0% on Black Friday despite what turned out to be a very strong day for retailers. While spending is down versus 2019, Black Friday sales are up nearly 50% from last year, and the difference in 2-year sales has not been lost.
Retailers like Guess? have been reporting stronger than usual and earlier-than-expected holiday shopping, and we see strength persisting into the end of the year. With Guess? reporting so strongly, raising the guidance, and doubling the dividend, we can’t help but view the pullback in share prices as an attractive entry point into this retailer.
The Company Is Well-Positioned For The Holidays
Two of the key takeaways from Guess?’s Q3 report is that it managed to outperform on the top line and with margins despite the impact of supply chain disruptions, and it says holiday inventory is more than sufficient. In that light, we view the Q3 results as not only strong but a foundation for continued strength in the 4th quarter.
The company’s revenue is up 13% from last year’s Q3 and 4% versus 2019, including the impact of permanent store-closures and the unfavorable mix-shift in Europe. The revenue was driven by strength in the European Wholesale market as well as U.S. retail and licensing.
Margins widened at the gross and operating level and are expected to remain strong through the end of the year at least. The company is benefiting not only from less promotional activity but also from higher sell-through of products.
The operating margin came in at just over 10% and is expected to widen in the 4th quarter. Regardless, the $0.62 in adjusted earnings beat the consensus by $0.16, setting the company up to outperform the full-year consensus as well.
The company expects Q4 revenue to fall mid-single digits versus the Marketbeat.com consensus estimate for nearly 40% growth. The caveat here is that the analysts haven’t adjusted their targets to account for store closures, and the figures have significant upside potential. A mid-single-digit YOY decline also equates to a mid-single-digit sequential decrease, and we don’t see that happening.
Guess? Doubles The Dividend
Guess?’s results and outlook are strong enough to raise the dividend back to its pre-COVID level. That means an annual payout of $0.92 for a yield near 4%, with shares trading near the recent low.
The payout ratio is equally attractive at only 15%, suggesting another dividend increase next year. The balance sheet looks strong, so there are no red flags even if dividend increases don’t materialize in the future.
The Technical Outlook
Shares of Guess? experienced some volatility in the wake of the Q3 report and kick-off to holiday shopping, but support appears to be holding, and market action is bullish. It looks like price action is trying to effect a reversal, but resistance at the $24 level is holding it back.
If the market can get above the $24 level, we see it trending higher into the end of the year and early next year. The Marketbeat.com consensus price target is near $32.50, which by itself implies about 45% of the upside.
