Guess? (GES +0.00%) is an iconic European fashion brand best known for its signature denim which is sold in stores around the world.
At the end of January, Guess? announced that Carlos Alberini would be taking over as CEO. This surprised investors because Alberini's predecessor -- Victor Herrero -- did not announce an intention to leave. Herrero appeared to be doing a good job as CEO, adding to the confusion regarding his replacement.
CEO transitions are usually well-telegraphed, making Guess' sudden change unusual. Why did the company suddenly appoint Carlos Alberini as CEO?
Herrero's turnaround
Victor Herrero was appointed CEO of Guess? in 2015 to help orchestrate a turnaround.
Being an apparel retailer, Guess? has had to deal with the impact of e-commerce changing the way people shop. The company has seen foot traffic at stores decline as more people shop online, resulting in a loss of revenue and profits for the company.
GES Revenue (TTM) data by YCharts
In response to declining sales at stores, then CEO Herrero led a turnaround effort that involved closing over 50 stores in the United States and cutting costs by renegotiating leases and supplier agreements. At the same time, the company opened new stores in Asia to capitalize on rising consumer spending there.
Under Herrero's tenure, revenue stopped declining and began to rise again, all while maintaining a healthy balance sheet with a net cash position. In response to the positive developments, the company's stock price increased dramatically in 2017 and 2018. However, this increase in stock price came after further declines in 2016.
GES Total Return Price data by YCharts
It is unclear why Guess? replaced Herrero, as he made significant progress in turning around the company during his tenure. No specific reasons for firing Herrero were cited in the announcement appointing Alberini.
Check out the latest earnings call transcript for Guess?
What Carlos Alberini brings to the table
Carlos Alberini might be Guess' new CEO but he is not new to the company, having served as the company's President and COO from December 2000 until June 2010. His original tenure as an executive at Guess? was marked by success. From 2000 to 2010, the company achieved massive growth and saw its stock price soar.
GES Total Return Price data by YCharts
Alberini is a seasoned retail executive and has kept himself busy since he was last employed by Guess?. Since 2010, Alberini has gone on to serve as the co-CEO of furniture retailer Restoration Hardware and later as CEO of rival apparel company Lucky Brand.
After learning about the success of Alberini's original run at Guess? and his strong experience gathered from running Restoration Hardware and Lucky Brand, it is clear that he is well-qualified to be CEO of Guess?. Although it is unclear from the announcement, the story behind Alberini suddenly replacing Herrero may simply be that the board thinks Alberini makes a better CEO and opportunistically had a chance to snap him up.
Alberini's plan for growth
Although Carlos Alberini has been on the job for less than a month, he has articulated a strategy focused on revenue growth and continued discipline in managing costs. Alberini believes Guess? can be a much larger brand globally.
On the Q4 2019 earnings call, Alberini laid out his view of the Guess? Brand:
Guess? has sales and retail value of over $5 billion, with a very diversified assortment of product categories, including an expansive offering of accessories, handbags and footwear. We know that other comparable brands, which have similar country distribution but have less diversified assortments, have reached between $7 billion and $9 billion in retail sales globally, so our opportunity should exceed 40% to 80% of growth from current levels once we reach development in all global markets.
On the same call, Alberini admitted that he needs to spend more time working with the management team to iron out the details of a growth strategy. However, the CEO noted that the company can grow by opening more stores. In addition, he also commented that Guess? stores opened over the past few years have been profitable and value-enhancing, and there is additional opportunity to continue store expansion.
Alberini's focus on growth through store expansion isn't much of a departure from former CEO Herrero's strategy. The key difference is the scope of ambition. Alberini believes that Guess? has a valuable brand thst can grow to be 40% to 80% larger in the near future. If the company can execute on this goal, it would be monumental for shareholders.
Image source: Getting Images.
What to make of the CEO transition
The swift leadership transition from Victor Herrero to Carlos Alberini caught investors off guard. Herrero appeared to be doing a good job in turning around the company, and some investors may be sad to see him go. That being said, Alberini has a strong resume, bringing both an intimate knowledge of the company and strong executive experience at other retailers.
Based on the initial comments fromy the new CEO, investors should expect Guess? to focus on sales growth over the next few years. Perhaps the company is signaling that the turnaround is nearing completion, and the company is ready for the next stage in its history. Regardless, Alberini appears to be a strong leader that will do well by the company.
