Guess? Looks Hot

The biz press is nothing if not amusing in its predictability. These days, the headlines discussing the outperformance at Guess? (NYSE: GES  ) talk about how the retailer beat earnings by $0.02 per share. Knuckleheads.

Beating by a couple pennies means zilch, except in the minds of the bubbleheads who need some way to try to present earnings reports that look like NFL score updates. But more importantly, the $0.34-per-share figure Guess? achieved is really more than 50% better than analysts' estimates -- at least if you've got a memory longer than a sparrow's. (Doubtful, by the way. I've worked in newsrooms.)

That's because until Guess? changed its guidance a few days back, analysts figured the company would be good for $0.20 a share. They bumped things up to $0.32 after that, but clearly, Guess? was sandbagging last week when it said it would achieve a bottom line of $0.30 to $0.33 per share.

That makes the quarter much more of a blowout than the "boo-yah!" crowd is letting on. By the way, I don't blame analysts for getting the guess wrong on Guess?, because it's really tough to get the hang of where the company is going. Higher-margin Europe took off in Q1, and stateside sales were stronger than expected. Couple that with disciplined spending, and moving one side of this lever makes the other side jump a long way. (Get a peek at all of the numbers.)

The bigger-than-imagined gains in sales, like last month's nearly 23% comps gain, convince me that -- stonewash jokes be damned -- Guess? has its groove back. Go ahead and take a look. If you click on through the wares, you'll see a look that's quite distinct from the kind of homogeneous styles you find at Abercrombie & Fitch (NYSE: ANF  ) , Pacific Sunwear (Nasdaq: PSUN  ) , and American Eagle Outfitters (Nasdaq: AEOS  ) , to say nothing of frumpy old Gap (NYSE: GPS  ) or faux-hipster Urban Outfitters (Nasdaq: URBN  ) .

If this pace keeps up, these expensive-looking shares will look very cheap in retrospect, which is why I continue to hang on to mine.

Still, I have this nagging ache in my gut. I'm going to be honest with you here; I'm starting to worry about accounting. Here's the deal. First we find out that COO and President Carlos Alberini received a Wells Notice from the SEC, not for anything at Guess?, but for some major accounts-payable problems discovered four years ago at his previous employer Footstar. Somehow, I missed the fact that, a few days before that Wells notice was announced in an 8-K, another one was filed telling us that CFO Fred Silny had left "to pursue other opportunities."

Now, add to this the May 3 announcement that Guess? had received a comment letter from the SEC on its accounting for intangibles in a recent acquisition (released, of course, in a combo press release with the upbeat earnings), and you see why a serial skeptic like me would have reason to get itchy -- especially when eyeballing the 10-Q. Sure, that negative $27 million in free cash flow this quarter looks reasonably explained by the growth in stores, plus changes in working capital related the seasonality of the European biz. But that doesn't mean I won't watch it next quarter to make sure it looks OK.

If you hold this stock now, things look great. Celebrate. But keep your eye on the numbers behind the party.

Pacific Sunwear is aMotley Fool Stock Advisor recommendation. You can take afree lookto see why Tom Gardner added it to his stable of market-beating stocks.

Seth Jaysonfigures the stock market is a great match for his skepticism. At the time of publication, he had shares of Guess? and American Eagle but held no positions in any other company mentioned. View his stock holdings and Fool profilehere. Gap does double duty as a Stock Advisor selection and a bargain-pricedMotley Fool Inside Valuepick. Fool rules arehere.

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