Perhaps Guess? (NYSE:GES) should take that question mark in its name and use it to punctuate this quarter's results. After the clothier reported results last night, the stock price fell nearly 7% in aftermarket trading and is continuing on a downward trend today, even though the results for this quarter were as fashionable as the company's contemporary merchandise. So ... any guesses on what's happening here?
Revenues rose 48%, to $388.3 million. Despite increased spending on investments, including heavy expansion into both Europe and Asia, the operating margin expanded by 250 basis points, to 15.3%. And all of its businesses contributed to the 82% surge in profits, with all segments experiencing double-digit revenue and earnings increases. But the news gets even better. Management is so confident about the future that it's raising its guidance for the year, to $1.79-$1.84 a share, from $1.75-$1.80. Guess? also boosted its quarterly dividend 33% to $0.08 per share.
All this, yet the stock is falling.
Now, the part you've been waiting for. Apparently, analysts believe that even the increased earnings guidance is too conservative, given the momentum the company has experienced so far this year. So for us Fools, the drop just opens up a buying opportunity on a company that has such great long-term potential.
Many Guess? contemporaries these days, including retailers Gap (NYSE:GPS), Abercrombie & Fitch (NYSE:ANF), and bebe Stores (NASDAQ:BEBE), have all posted falling same-store sales in their most recent quarters. Meanwhile, Guess? posted a 16.2% rise in comps. It's certainly doing something better than its competitors are.
I do have concerns with the high valuation -- the price-to-earnings ratio sits above 32. But with current growth trends and the recent pullback in price, this stock is becoming just as appealing as the company's merchandise.
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