When it comes to second-guessing Guess?
The fashion retailer surprised Wall Street yet again by blowing far past earnings estimates in the recently completed third quarter. While the Wise figured Guess to come up with $0.37 a stub, earnings per share actually climbed 70% to $0.46, on a 34% revenue increase. And that number includes a special compensation expense of $0.06 per share, related to some rejiggering in the licensing segment.
To be fair, I never expected Guess? would club it that far out of the park either, but since buying shares a while back, I've learned not to overthink this investment. While others might worry every tiny apparel industry hiccup (Too much denim? Embargo troubles?), I keep my eyes on the big picture.
As before, the good results continue to come for all the right reasons: improving sales via store openings, improving comps sales, more profitable product lines. As the revenues increase, the firm's getting some leverage, which is sending margins ever higher. Gross margin clipped up 5.1% to 43.1%, while operating margin reached 13% vs. 10.2% last year.
The firm is producing good cash flow, which is a handy thing since it's planning to continue expanding both in North America and worldwide, through a combination of retail locations and licensed stores for apparel, plus newer, Marciano concept for women and a fast-growing accessories business.
That's why, despite the big rise, and despite the pricey looking trailing P/E, I think I'll be hanging onto my shares. I believe management's doing all the right things, and those growth opportunities look good.
For one thing, the brand is well positioned, by which I mean unique. It's hard to come up with a direct competitor to this company. Sure, Buckle
Investors looking to get in on this continuing growth/comeback story would do well to read the filings carefully and listen to the conference calls. Because Guess? does a lot of business in Europe, where there is a different shopping and fashion cycle, and its seasonality isn't the same as it is for U.S.-only retailers. And given a prior-year acquisition of a former licensee, prior-year figures for revenue, earnings, and balance sheet items like receivables aren't directly comparable.
But there's a lot to like behind these numbers, which is why the only guess I'm willing to make about the future is that this company's management will continue to get it done, and that will pay off for shareholders.
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Seth Jayson is glad his wife let him in on the Guess? story. At the time of publication, he had shares of Guess? and American Eagle Outfitters, but no position in any other company mentioned. View his stock holdings and Fool profile here . Gap is a Motley Fool Stock Advisor recommendation. Fool disclosure rules are here .