Will Guess? (GES) Improving Comps Help Offset Headwinds?

With improving U.S. economy and rise in consumers’ spending, we have witnessed a rise in demand for consumer discretionary products like apparel, footwear and personal accessories. However, consumers shifting preference for online shopping has severely dented store traffic, leading to lower margins and even store closures. Despite these headwinds, Guess?, Inc. (NYSE:GES) , which deals in apparel as well as accessories for both men and women, has been benefiting from improved margins, e-commerce growth as well as strong international presence.

Let’s delve deeper and look into the factors which are boosting Guess?’s performance.

Strong Comps Growth & Strong International Presence

The company has been witnessing growth in comparable store sales (comps) in Europe, Asia and American Wholesale segments since past few quarters, owing to strategic efforts. Guess? has been undertaking several initiatives to expand its store base in these regions, which led the company to post improved revenues in the last four quarters.

Having strong presence in almost 90 countries outside the United States and Canada, Guess? is expanding fast in European and Asian countries owing to ample opportunities. The company also plans to expand into emerging markets like Brazil, Germany and Russia and grow the ‘G by GUESS’ concept both domestically and internationally.

Despite intensely competitive retail environment, the company expects improvement in both Europe and Asia in fiscal 2018 as its expansion plans are on track. In the Americas, the company expects to remain focused on profitability improvements, backed by plans of rent reductions and closing underperforming stores. Moreover, comps in Europe and Asia have also improved courtesy of new store openings. In addition, management expects to add nearly 70 outlets in Europe in fiscal 2018. It remains on track to boost its business in Asia via robust strategies and plans to open 35 stores during fiscal 2018. Strong results also led the management to raise its fiscal year 2018 guidance.

For fiscal 2018, management expects consolidated net revenues to rise 6-7.5% versus 3.5-5% guided earlier. On a constant-currency basis, consolidated net revenues are anticipated to grow n 4-5.5%, same as guided previously. Also, adjusted earnings per share for fiscal 2018 are forecasted in the range of 52-60 cents, up from 34-44 cents expected earlier.

E-Commerce Initiatives

With growing digitalization in shopping, retailers are shifting their focus from physical stores to e-commerce selling. The company has also been focusing on linking the brick-and-mortar stores, e-commerce and mobile sales to improve e-commerce operations. This has enabled customers to reserve merchandise online and pick them up from stores. Management remains optimistic on its e-commerce initiatives to drive sales.

Cost Saving and Focus on Productive Regions

The company, which shares same industry space with Cherokee Inc. (NASDAQ:CHKE) , Tailored Brands, Inc. (NYSE:TLRD) and Gildan Activewear, Inc. (TO:GIL) , has been facing macroeconomic challenges in the United States and Canada, owing to lower consumer spending in North America. Hence it has resorted to store closures in these regions. As a result the company has restricted its growth in these regions to focus on other prospective arenas that have a strong trend and positive long-term outlook. In this regard, the company will continue to allocate the majority of its capital investments in Europe and Asia, and will reduce its footprint and cost structure in the United States.

The company is also executing its supply chain initiatives by product cost improvement. In fact, stringent cost control by way of improvements in supply chain management in the European segment has aided margin expansion in the region for four consecutive quarters now, including the second quarter of fiscal 2018.

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