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Cabot Undervalued Stocks Advisor Special Bulletin

This retail stock reported fiscal 2020 third quarter results (January year end).

Today’s news: Guess? (GES) reported fiscal 2020 third quarter results (January year end).

Guess?, Inc. (GES – yield 2.4%) reported $0.22 third-quarter adjusted non-GAAP earnings per share (EPS) yesterday afternoon vs. the $0.18 consensus estimate, and above all analysts’ estimates. Revenue was $616 million, up 2% year over year, but a bit shy of the $620.3 million consensus estimate.

On a regional and segment basis, Europe, Americas Wholesale and licensing were strong, while Asia and Americas Retail were weak. The Americas Wholesale business includes a few large customers, including Macy’s and Pacific Sun. The Asia business segment includes China, Hong Kong and Japan, which were partly affected by macro trends that include the trade war and Hong Kong protests. Guess management plans to develop product that more specifically addresses local styling preferences in that region. Revenue growth in Europe outperformed all other business segments, up 9.1% in U.S. dollars and 13.2% in constant currency.

The company repurchased 16.4 million shares of stock during the first nine months of their fiscal year. Investors may listen to the replay of the earnings conference call.

The stock should continue to draw investors’ attention through mid-December as analysts attend Guess’ Investor Day next week on December 3, and follow up with new research reports for their institutional and retail clients. CEO Carlos Alberini foresees “a lot more operating margin expansion opportunity,” which he’ll discuss at the Investor Day. “During the event we will present our strategic business plan and key strategic initiatives for the next five years.”

Management raised the low end of this year’s EPS guidance from $1.28-$1.36 to $1.31-$1.36. I don’t expect that to change the current consensus EPS estimate of $1.34, reflecting 37% growth. However, Guess’ ongoing quarterly successes could inspire analysts to raise fiscal 2021 estimates, currently reflecting 21% growth.

The stock remains undervalued, offering the strongest multi-year earnings growth of all established U.S.-based apparel retailers. No matter what the share price does today, I think GES is the most important clothing stock for investors to own in the coming years. Strong Buy.