Will Coronavirus Further Dent Guess? Americas Retail Unit?

The outbreak of the novel coronavirus compelled the apparel and accessories retailer, Guess?, Inc. (NYSE:GES) , to temporarily close all its stores across the United States and Canada. The shutdown, which is scheduled to last till Mar 27, will be effective effect from today. Also, company-operated stores in various countries across Europe are shut.

Moreover, management stated that customers can continue to make online purchases via the Guess, Marciano, Guess Factory and gbyguess websites. Also, majority of the company-operated stores, which were earlier closed in the Asia region, have been reopened.

Notably, the COVID-19 pandemic has affected the global market and disrupted economic activities worldwide — denting demand, hurting supply chain, slowing production and leading to temporary closure of brick-and-mortar stores. The deadly virus has infected more than 160,000 people worldwide and death toll has crossed 6,000.

Recently, retailers like Columbia Sportswear Company, Urban Outfitters, Inc. (NASDAQ:URBN) , Ralph Lauren (NYSE:RL) and Nordstrom (NYSE:JWN) have also resorted to store closures.

Coming back to Guess?, the company has been witnessing softness in the Americas Retail segment due to unfavorable macroeconomic conditions. During the third quarter of fiscal 2020, revenues in the segment declined 4.9% year over year and 4.5% at constant currency (cc). Moreover, retail comparable sales, including e-commerce, declined 3% on a year-over-year basis and at cc. The downside was caused by lower traffic and AURs. We believe that the recently-announced store closures could further dent the company’s performance in the segment.

Apart from this, the company has also been witnessing sluggishness in Asia for the past few quarters, thanks to broad-based softness in significant markets like China, Korea and Japan. In fact, traffic remained sluggish across all these regions during the third quarter. During the quarter, Asia revenues declined 8% (up 4.6% at cc). Retail comps, including e-commerce, lost 21% (down 19% at cc) due to deterioration in store traffic.

Nevertheless, the company has been benefitting from strength in the European segment, backed by constant store openings and e-commerce growth. That being said, it is yet to be seen how the segment performs in the face of the pandemic, which has affected Europe.

We note that, shares of this Zacks Rank #5 (Strong Sell) company have slumped 57.8% in the past six months compared with the industry’s decline of 30.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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