The recession has pushed some folks' finances to the brink. Maybe you can't see them outside your window queuing up in bread lines or exchanging their clunky old vehicles and appliances for cold, hard cash, but they're out there.
That's what makes Guess?'s (NYSE: GES ) second-quarter results so baffling. The world spent enough money on its apparel and accessories this summer to induce spit-takes among the collective populations of several cities across the nation.
Analysts guessed early on that the company would easily meet management's second-quarter guidance of earnings between $0.42 and $0.45 per share, but it's difficult to imagine that anyone could have predicted the extent to which Guess? would outdo itself. Earnings grew by 14%, to $0.64 per share on record revenue of $522 million. Although exchange rate fluctuations held it to a modest 1% GAAP revenue growth, its top line grew by 9% in constant dollars.
Euro cash
Guess? management has to thank its European theater of operations for the robust results. Revenue grew 21% there despite strength in the U.S. dollar. On the North American front, sales dropped 6% to $227 million on weak same-store sales. But while the company added stores, inventories remained flat with last year's levels -- a healthy sign. And since the iron is still hot, Guess? plans to continue milking the European cash cow by investing in further expansion there.
Still, these results leave me scratching my head. I wrote off discretionary consumer spending when the downturn started. Believing that high-end retailers like Tiffany (NYSE: TIF ) would suffer at the expense of discounters such as Wal-Mart (NYSE: WMT ) , I decided that one of the last places to invest would be in specialty apparel retailers.
How could my gut be wrong?
And I'm still not sure if I'm ready to take the plunge into consumer discretionary stocks. However, when sizing it up against competitors like Polo Ralph Lauren (NYSE: RL ) , Abercrombie & Fitch (NYSE: ANF ) , and American Eagle (NYSE: AEO ) , Guess? trades at a lower price-to-earnings multiple and has much better prospects for future earnings growth. If I had to choose just one of these companies, Guess? is the one I'd probably pick.
Would a purchase of Guess? stock go against your instincts? What do you think is in store for the retailer? Share your thoughts in the comments section below or start a CAPS blog today and publish your own investment ideas.
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