Ticker: (NYSE: GES)
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How Did It Double?
On Monday Jan. 10, apparel retailer Guess ? announced that earnings for the December quarter would exceed analyst projections. Not only that, this also will be the fifth consecutive quarter of strong sales and earnings growth for the company with the popular namesake triangle logo. Business Description
Known primarily for its signature jeanswear, Guess ? is a designer, marketer, and retailer of casual apparel and accessories.
Financial Facts
Income Statement How Could You Have Found This Double?
For the September quarter, Guess reported same-store sales gains of 21.3%. Comps this high are often reported by troubled companies who have just had to clear out a ton of inventory at hara-kiri pricing. Where to From Here?
Since the retail side is coming along stronger than the wholesale side, it's easy to understand why Guess is picking up its pace of expansion. After opening just 19 stores in 1999, it is looking to launch 30 new stores and another 10 children specialty locations this year.
Phone: 213-765-3582
Website: www.guess.com
Price (1/12/2000): $23
Margins are rising. Same-store sales are soaring. The company just signed on MTV veejay and Grammy nominee R&B singing sensation Tyrese to a sponsorship deal. It's hard to second guess Guess when the denim and cotton specialist has been a cozy fit with investor expectations of outperformance.
Like a waif's transformation into former Guess ? cover girl Anna Nicole Smith, shares of Guess have filled out nicely.
Lines include denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets, and knitwear. The company sells its wares through wholesale distribution and in its chain of namesake retail and outlet stores. The company also operates kid's clothing stores under the Guess ? Kids name.
12-month sales: $537.1 million
12-month income: $41.1 million*
12-month EPS: $0.96*
Profit Margin: 7.7%
Market Cap: $1000.5 million (on 43.5 s/o)
(*Includes non-recurring items)
Balance Sheet
Cash: $44.9 million
Current Assets: $209.2 million
Current Liabilities: $82.0 million
Long-term Debt: $95.3 million
Ratios
Price-to-earnings: 24
Price-to-sales: 1.9
That has not been the case with Guess. A popular merchandise mix, not distressed fire sale pricing, has been the cash register catalyst. That has translated into more full-priced sales and fewer markdowns.
Place all the pieces together and one would expect strong margins for Guess. Indeed, that is exactly what has happened. In the third quarter the company reported a 69% spike in earnings while revenues inched up just 20%.
While the stock had traded just below $6 a share early in 1999, it was only beginning its turnaround at the time. Fashion is fickle and investing is even more particular. So the real chance to find Guess came in late October, with all the great third quarter news, yet with the stock trading at half of what it fetches today.
The company can afford the growth -- it has shaved off 25% of its debt load over the past year alone.
Earnings estimates, which as of last week were looking at $1.11 per share for last year (final results will be announced on Valentine's Day) and $1.36 per share this new year, will no doubt be inching even higher. The company had already topped third-quarter expectations by a dime a share and analysts hate to miss "Wide Left" over and over again.
The recent groundswell of shareholder enthusiasm should not, however, shield the reality that Guess has, and probably will continue to be, a brand and a retailer that will fall in and out of vogue. That is simply how the vast majority of specialty retailers operate.
The delayed reaction hope is that, if the luster does fade away, Wall Street will be as slow to walk away as it was to walk towards Guess in the first place.
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