Is Guess? (GES) Poised For A Beat This Earnings Season?

Guess?, Inc. (NYSE:GES) is set to report first-quarter fiscal 2018 results on May 24 after the market closes. The question lingering in investors’ minds is, whether this apparel retailer will be able to post a positive earnings surprise in the to-be-reported quarter.

The company posted an average earnings beat of 22.12%, despite missing the consensus mark thrice in the trailing four quarters. Consequently, the dismal performance weighed upon the stock and is clearly reflected in its share prices.

We note that in the past year, the shares of this apparel retailer have declined 39.9%, compared with the 19.0% decline witnessed by the Zacks categorized Textile-Apparel Manufacturing.

Let us see how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model shows that Guess? is likely to beat earnings because it has the right combination of two key ingredients.

Zacks Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.23%. This is because the Most Accurate estimate is at a loss of 30 cents, while the Zacks Consensus Estimate is pegged at a loss of 31 cents. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares. You may 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 Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Guess’ Zacks Rank #3 and an Earnings ESP of +3.23% makes us very optimistic about a possible earnings beat.

Which Way Are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate for the first quarter has improved marginally in the last seven days, while remaining stable for fiscal 2018.

Factors Influencing the Quarter

The company anticipates net revenue to grow 2–4% on a constant currency basis, in the first quarter. It also anticipates operating loss margin in the range of 6% and 7%, including 30 bps of currency headwind. The company expects a loss in the band of 30–33 cents.

Guess? is struggling with waning comps in the North American Retail segment. Comps declined 4.9%, 2%, 4% and 7%, respectively in the four quarters of fiscal 2017, due to a tough retail environment. Further, foreign currency is putting pressure on the company’s sales.

Further, the company is experiencing lower margins due to higher cost of sales. Although it is taking several cost cutting initiatives, higher promotional environment and competitive retail environment are putting strain on gross margins.

For fiscal 2018, the company expects improvement in both Europe and Asia as the company continues its retail expansion there. In the Americas, the company expects to remain focused on profitability improvements, backed by plans of rent reductions and closing underperforming stores. The company also expects to implement supply chain initiatives to drive profit improvement in fiscal 2018.

Stocks to Consider

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

Gildan Activewear, Inc. (TO:GIL) has an Earnings ESP of +2.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

H&R Block, Inc. (NYSE:HRB) has an Earnings ESP of +2.56% and a Zacks Rank #2.

Vail Resorts, Inc. (NYSE:MTN) has an Earnings ESP of +3.41% and a Zacks Rank #2.

Zacks' 2017 IPO Watch List

Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.

One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>