Please ensure Javascript is enabled for purposes of website accessibility

Why Guess? Stock Jumped 16% at the Open Today

By Reuben Gregg Brewer – Nov 24, 2021 at 12:19PM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The retailer's shares got a boost from its earnings report, but what was missing may be just as important as what was actually there.

What happened

Shares of fashion retailer Guess? (GES -0.94%) rose as much as 16% in the first minutes of trading on Nov. 24. By 10:30 a.m. ET the stock had trimmed that gain a bit, but was still sitting with an impressive advance of 13%. It was the company's after-the-close earnings release on Nov. 23 that likely got investors excited. The fiscal third quarter of 2022 was, overall, a pretty good one, but what management didn't have to talk about may be just as important as what it did talk about.

So what

On a day when The Gap (GPS 1.81%) saw its shares plunge at the open, Guess? shares somehow managed to rise. Here's the big difference: Management of The Gap, during its quarterly earnings call, had to tell Wall Street that supply chain issues led to $300 million in lost sales. Guess?, on the other hand, talked about being in a "strong" inventory position, that customers were "responding well" to its assortment, and that it was seeing "strong gross margin expansion" despite supply chain headwinds. Investors have been hyper focused on supply chain problems lately, punishing companies that have been hit by the issue. That Guess? managed to avoid a supply chain problem was likely a big help today.

A person looking at a red line jaggedly rising.

Image source: Getty Images.

But don't forget about the retailer's actual fiscal third-quarter 2022 earnings, which were pretty good. For example, third-quarter sales were up 13% compared to fiscal 2021 numbers and 4.4% relative to fiscal 2020, before the pandemic hit. Its sales were better than management had expected, with the company managing to increase its adjusted operating margin from 3.7% in the third quarter of fiscal 2020 to 10.9% this year. That number was also 1.2 percentage points higher than the adjusted operating margin in fiscal 2021. Higher selling prices as the company worked through a revamp of its business were a notable help. On the bottom line, Guess? earned $0.62 per share, up from $0.58 in fiscal 2021 and $0.22 in 2020. Not only did the company surpass its own expectations, but it also beat Wall Street's top- and bottom-line calls. Add it all up and you can see why investors liked the update.

Now what

The good news didn't end there, however, with the company also announcing that it doubled its dividend to $0.225 per share per quarter. To be fair, Guess? also warned that the fourth quarter would likely be impacted by store closures related to economic shutdowns in Europe. So the news wasn't all good. But that the retailer has been able to handle the supply chain headwinds while working to get its business back on a growth track is very positive and investors seem to be wearing their rose-colored glasses today.

Reuben Gregg Brewer 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.