Did the Street Make a Bad Guess on this Clothing Retailer?

Ever since Guess? (NYSE: GES  ) reported its earnings results, the stock has been knocked down by as much as 10% on a disappointing outlook for the holiday quarter. With so many other women's clothing retailers showing similar struggles, such as Aeropostale (NYSE: ARO  ) , American Eagle Outfitters (NYSE: AEO  ) , and even New York & Company (NYSE: NWY  ) , perhaps the sell-off is a bit overdone in terms of long-term value.

Guess? reported fiscal third-quarter results on Dec. 4. Revenue slipped 2.4% to $613.5 million. Same-store sales dropped 5%. Adjusted earnings per share dipped by $0.01 to $0.42. Although earnings beat the company's expectations and revenue was within the range, the declines certainly don't afford Guess? any bragging rights.

CEO Paul Marciano blamed "the economic climate in Southern Europe" for the ongoing declines. He sees positive trends in North America for the holiday quarter though they won't be strong enough to overcome Europe. Guess? expects fourth-quarter sales to be down 5%-8% to $750 million-$770 million, and diluted earnings per share to be down 12%-22% to $0.74-$0.84.

For the full year, the fourth-quarter guidance puts Guess? at an adjusted earnings per share of $1.73-$1.83. With a stock price of $31, this puts the 2013 P/E ratio at around 17-18. Based on 2014's average estimate of $2.05, Guess? is at a P/E ratio of 15. This does not seem expensive compared to others such as Aeropostale especially if Guess? is in the low-end of the retail cycle.

In Aeropostale's last reported quarter, it got beat up far worse than Guess? did. Net sales got hacked 15%, same-store sales also got smacked 15%, and it posted a $0.29 per share adjusted net loss. Aeropostale blamed "heightened promotional levels and inconsistent mall traffic trends" which suggests that a large part of the problem for Guess? isn't unique to just Guess?.

Analysts expect Aeropostale to post a net loss for full-year 2013 and another large net loss next year. Given that Aeropostale doesn't even have any expected earnings going forward for calculating a P/E ratio, Guess?'s P/E of 15-18 doesn't seem so bad. What about American Eagle Outfitters?

American Eagle Outfitters
American Eagle Outfitters was shot out of flight last quarter. Revenue was down 6%, same-store sales dropped 5%, and adjusted earnings per share got slaughtered 54% to $0.19. Just like the others, American Eagle Outfitters blamed the promotional environment and economic challenges while noting a bit of an uptick on Black Friday.

Analysts expect American Eagle Outfitters to post adjusted earnings per share of $0.76 this fiscal year and $0.94 next fiscal year for P/E ratios of around 19 and 15, respectively. This is inline or even slightly worse than expectations for Guess? Then there's New York & Company.

New York & Company
New York & Company didn't do far better than the other three on the growth numbers, but its net loss improvement was still substantial. Sales fell 0.8%, same-store sales actually went up 3%, and net loss improved 10.5% to $3.4 million. New York & Company cautioned that guest traffic was slower than expected, but the company had a great Black Friday.

For the current fiscal year, analysts expect New York & Company to earn just $0.03. For next year, they expect $0.21. That puts next year's P/E ratio at over 20, making New York & Company the most expensive of the group.

Foolish final thoughts
Whether business conditions have truly reached a bottom is anybody's guess. Fools looking for a solid earner that hasn't priced in a turnaround may want to take a peek at Guess? With a cheap P/E, there appears to be zero speculation priced into the stock which means any uptick in the environment or business going forward and Guess? could be off to the races.

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