Please ensure Javascript is enabled for purposes of website accessibility

Why Guess? Inc. Stock Fell 12.1% in March

By Demitri Kalogeropoulos - Apr 7, 2016 at 12:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's all about profit growth.

What: Apparel retailer and apparel maker Guess? (GES 4.53%) saw its stock decline 12% in March, according to data provided by S&P Global Market Intelligence.

GES Chart

GES data by YCharts

Shares rose sharply in February -- and even touched a 52-week high -- but took a step back last month after the company announced disappointing fourth-quarter results.

So what: Sales in the holiday quarter fell 6% worldwide as Guess? enjoyed solid demand growth in Europe and steady gains in the U.S., but posted a near 20% sales decline in Asia. Profitability declined, with gross margin shrinking by a full percentage point to 36.5% of sales. That weakness was the key reason why earnings slipped 10% to $0.57 per share.

"There is still more work to be done, but I am convinced that the initiatives we have started to implement in the last few months have contributed to these encouraging results," CEO Victor Herrero said in a press release.

Now what: While Wall street was projecting slightly higher profits last quarter, the real issue was the weak earnings guidance Guess? gave for fiscal 2016. Management forecasts that operating margins will sink to as low as -5% next quarter before rebounding to just 4.5% for the full year.

Source: Guess?

If that happens, it will erase the profitability gains that Guess? has managed over the past few years: Operating margin was 5.5% in 2015, up from 5.2% in 2014.

The good news is that the company should log significant sales growth this year thanks to contributions from a booming e-commerce business, a growing store base, and steady revenue gains at existing locations. Meanwhile, Herrero's long-term target still calls for hitting an impressive 7.5% operating margin over the next three fiscal years, even if 2016 will mark a step back from that goal.

Ultimately, investors didn't find a lot of evidence to support that long-term profitability target in the latest operating results, and so Guess?' stock declined to account for the slowing earnings growth profile.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Guess?, Inc. Stock Quote
Guess?, Inc.
GES
$20.98 (4.53%) $0.91

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
356%
 
S&P 500 Returns
124%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.