Alas, the other shoe -- spiky, with sequins, no doubt -- finally drops at Guess?
During August, Guess? shoppers purchased only 4% more goods on a comparable-store basis and only 8.8% more overall. That's why Mr. Market is shellacking the stock 7% today, after the (suspicious enough) thwacking the stock took on Wednesday.
Is a 10-plus percent bludgeoning so far this week fair? I suppose that depends on what your definition of "is" is. Compared to, say, American Eagle Outfitters'
It all comes back to expectations, of course. There's little carnage in the share price at PacSun or Gap today because everyone already expects these firms to stink it up. They've been doing that for months, and are priced accordingly. (Well, not quite cheaply enough, by my math, but you get the idea.)
Guess?, on the other hand, is going to look pricey to most market watchers. It carries a P/E of (gasp!) 24! Too high for a retailer heading into a consumer-confidence meltdown, eh?
Well, that's the problem with the old P/E. It doesn't really tell us much of the story of profit potential at Guess?, which is explosive because of the room for margin improvement. Don't get me wrong, the leverage that puts green on the bottom line works better with higher sales, especially at existing stores, but an off month doesn't necessarily mean the end of the good times.
Management said it was still confident about the guidance it has previously provided. And it noted that more sales were made at full prices than during August of last year -- a situation that surprises me given the large amount of shelf space devoted to clearance items at my local Guess? shop.
That just goes to show that retail investors should never put undue weight on limited data points. I'd argue that the same goes for today's mediocre sales report.
American Eagle is up 16% (compared to the market's 0.8%) since it became a Motley Fool Stock Advisor recommendation back in June. Pacific Sunwear, another Stock Advisor pick, is, alas, not. Strikes and gutters, that's how investing goes, but to take a look at an entire market-beating stable of stock ideas from the Fool's co-founders, the brothers Gardner, afree trialis just a click away.
At the time of publication, Seth Jayson had shares of Guess? and American Eagle Outfitters, but no positions in any other company mentioned here. View his stock holdings and Fool profile here. See what he's Digging these days. Gap is a recommendation of both Stock Advisor and Motley Fool Inside Value. Fool rules are here.
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