What happened
Shares of apparel retailer Guess? (GES 2.14%) soared on Thursday after the company reported financial results for its fiscal second quarter of 2024. As of 2:10 p.m. ET, the stock was up 25% and getting close to hitting a new 52-week high.
Q2 revenue for Guess? was up a modest 3% year over year to $665 million. The bigger achievement in the quarter, however, was the company's profitability. Its operating margin improved to 9.7%, providing it with $64.6 million in earnings from operations. And these results on the top and bottom line beat expectations, sending the stock higher.
So what
It's hard to overemphasize how big of a surprise these results were for the company. Management's guidance included the possibility of a small drop in revenue. And it was only expecting an operating margin of 5.2% to 6%.
To put this in more practical terms, management expected $38.6 million in earnings from operations at best in Q2. Real results were 67% higher, which is why this is such a big deal.
Now what
For fiscal 2024, management narrowed its revenue guidance. Whereas it once expected 2.5% to 4.5% growth it now expects 2.5% to 4% growth. However, it raised its guidance for its operating margin from 7.5%-8.3% to 8.9%-9.3%, which is meaningful.
CEO Carlos Alberini said, "We have a clear strategy and our teams are executing well and achieving solid results." Which may indeed be true. But just by way of observation, several apparel retailers are doing well right now, including Abercrombie & Fitch, which saw comparable improvements to its business.
It was a great quarter for Guess? and I won't detract from that. I would simply encourage investors to monitor results in coming quarters to ascertain whether the clothing company is making the right moves or simply benefiting from industry tailwinds.
