Major sales growth? Check. Huge earnings growth? Check. Rabid following on Wall Street? Not really.


Such is the continuing tale of resurgent retailer Guess? (NYSE:GES), which continues to put up numbers that should have any growth investor salivating. But go ahead and check the message boards on this ticker and you'll hear crickets. Everyone else, it seems, is looking for more great things from American Eagle Outfitters (NASDAQ:AEOS) or Abercrombie & Fitch (NYSE:ANF), waiting for a turnaround that may never come at Gap (NYSE:GPS), or maybe they're all nuts for nutty money-losers like iRobot (NASDAQ:IRBT) or FortuNet (NASDAQ:FNET).

Me, I'll take the proven, rehabbed retail over washed-up clothiers and the fad floor vacs, or casino clingers, thanks, and here's why.

Earnings and cold hard cash are coming in by the bucketsful, with bigger buckets every quarter. For the latest second quarter, Guess? sales were up 30% and earnings tripled from $0.09 to $0.30 per share. Free cash flow clocked in at $38 million for the first half of the year, many times the $481,000 from the prior year's opener. And it looks like there's more of that on the way.

The plot behind this growth story hasn't changed much. Comps growth for the quarter was better than 17%. In the U.S., continuing sales strength is helping the company leverage its costs for higher earnings.

Greater-than-anticipated growth in Europe, a higher-margin segment, has boosted earnings even more. Accessories and footwear have also bested expectations, and the end result is enough to bring a tear to any retail investor's eye. The company's cash position has more than doubled, inventory remains lean, debt has come down, and check out the margin expansion.

Q2 2006

Q2 2005


Gross Margin




Operating Margin




Net Margin




*Expressed in percentage points.

And as great as that looks, I expect to see better. Even a duffer like Pacific Sunwear (NASDAQ:PSUN) can haul in 8% or 9% net margins. American Eagle and Abercrombie play in the 12% range.

Given the way Guess? management has been executing, I see no reason why it can't get close to that level, while keeping sales growing in the high teens, to boot. Sales from this summer of discontent, meaning July, increased another 16.3% on a 10.7% comps uptick, and as nice as that sounds, it's just a whiff of what Guess? has been able to do recently. That strength encouraged management to up its Q3 guidance to 20% sales growth and add $0.03 to $0.04 per share to the earnings target.

I hesitate to venture a guess as to where sales, earnings, or share prices will be a year from now. Suffice it to say that Wall Street analysts and I have guessed low time and time again, and that's why I continue to hold these shares and let management do its best.

American Eagle and Pacific Sunwear are Motley Fool Stock Advisor recommendations. You can take a free look at why the brothers Gardner added them to their stable of market-beating stocks.

iRobot is a Motley Fool Rule Breakers recommendation, and Gap is both a Motley Fool Inside Value and Motley Fool Stock Advisor recommendation.

At the time of publication, Seth Jayson had shares of Guess? and American Eagle but no positions in any other company mentioned here. View his stock holdings and Fool profile here . Fool rules are here.