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Why the Beaten-Down Shares of Guess? Popped 22% Today

By Daniel Miller – Updated Sep 2, 2020 at 12:17PM

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The apparel retailer survived an unprecedented quarter and blew past analysts' estimates -- and provided icing on the cake for long-term investors.

What happened

Shares of Guess? (GES -0.45%), a retailer of apparel and related consumer products, jumped over 22% early Wednesday morning after the company not only obliterated analysts' consensus estimates but also delivered more great news for investors.

So what

Many brick-and-mortar retailers faced unprecedented circumstances when the coronavirus kept consumers at home and away from stores, but Guess? management was able to control costs and inventory to offset some of the impact of the pandemic. Fiscal 2021 second-quarter revenue dropped 42% to $399 million, and the adjusted loss per share checked in at $0.01; but those results were far better than analysts' estimates of a $0.58 adjusted loss per share on revenue of $385 million.

Management also increased product margins and ended the second quarter with inventories down 13%, compared with the prior year, with plenty of liquidity to survive the continued slow traffic. The icing on the cake for long-term investors was the reinstated quarterly cash dividend of $0.1125 per share for a yield of roughly 3.3%, in line with the payment prior to the pandemic.

Apparel retail store

Image source: Getty Images.

Now what

In a press release, CEO Carlos Alberini said: "Overall, the crisis inspired our team to think differently, to challenge every aspect of the business and to architect a simpler, more efficient, capital-light and flexible model. We are building a business that will be better positioned to compete in the future and gain market share globally." 

GES Chart

GES data by YCharts.

While the company's results blew past estimates, investors still have a lengthy road to recovery. Many brick-and-mortar stocks are still well behind the broader market recovery, and management expects the second half of the fiscal year to record mid-teen declines in revenue.

That said, today's pop in the stock price is warranted as management proved capable of offsetting some negative impacts during an unprecedented quarter.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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