Why Guess? Shares Shot Up

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Guess?  (NYSE: GES  ) were delivering the right answers in its quarterly report today, climbing as much as 14%.

So what: The jeans-and-apparel maker said second-quarter adjusted earnings totaled $0.52 a share, well ahead of the analysts' estimate at $0.36, while revenue also topped expectations of $622.9 million on a 0.6% increase to $639 million. Same-store sales actually dropped 2%, but that was considered a sign of stabilization, coming after comparable sales fell 10% in North America in the first quarter. In Europe, Guess?' other major region, signs were also pointing up, as August comps were up by mid-single digits, though that came after the reporting period. Management's also lifted its full-year EPS guidance above projections, calling for a midpoint of $1.85 against the consensus at $1.79. Its revenue guidance was slightly below estimates.

Now what: I'm not sure if Guess? is out of the woods just yet. While same-store sales improved, the decline is still a warning sign, and losing those sales will eat into profits. CEO Paul Marciano noted the positive North American trends in the report, but also said the economic landscape was challenging in Southern Europe and China. With modest growth prospects ahead and an average valuation, I'd say Guess? needs to grow its profits first before shares deserve to go higher.

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9/28/2016 11:29 AM
GES $14.12 Down -0.13 -0.91%
Guess? CAPS Rating: ***