Yaaaaaaaaay!

Yaaaaaaaaaaaaaaaaaaaaaaaaaaay! Yay! Yay! Yay! Yay! Yay! Yay!

If you hear that from the cube next to you, it could be that your colleague owns shares of Guess? (NYSE:GES).

If you've been following this resurgent retailer, you might know most of this story. After years of crummy performance, Guess? has tripled over the past year or so on the strength of growing earnings driven by some beefy sales growth. And that "Yay!" today is a reaction to May.

Same-store sales grew at a 20% clip during the month, far exceeding the low teens expected by analysts, who were, to tell the whole story, guided there by conservative management projections for 2006. Overall, revenues jumped 26.8% for the month.

But there's more to ogle here than just the sales growth. As I've discussed before, the real boost to earnings at Guess? has come via margin expansion on top of that sales growth. And last quarter's blowout was fueled by performance in Europe, where the margins are even fatter.

Here's a brief peek at those trends.

FY 2003

FY 2004

FY 2005

TTM 4/1/2006

Gross Margin

34.6%

37.6%

40.7%

41.1%

Operating Margin

3.6%

7.6%

10.9%

11.5%

Net Margin

1.1%

4.1%

6.3%

6.7%

Free Cash Flow Margin

7%

6.4%

10.2%

8.2%



And this continuing expansion is why investors should pay special attention to the blurb in today's press release about European biz being ahead of expectations. It hints at more pleasant surprises down the line.

Guess? is back from the dead, and as I've noted before, it's peddling something distinct from the homogenous look you'll find at Abercrombie & Fitch (NYSE:ANF), Pacific Sunwear (NASDAQ:PSUN), and American Eagle Outfitters (NASDAQ:AEOS), to say nothing of frumpy old Gap (NYSE:GPS) or hipster Urban Outfitters (NASDAQ:URBN).

Best of all, there still seems to be little buzz about the stock. So take a look, and remember, the more your buddies ridicule your interest in Guess? ("Dude, how you gonna make any money in stonewash?"), the bigger the opportunity. Once the trend is evident to everyone, the easy money will have been made.

For related Foolishness:

Pacific Sunwear is a Motley Fool Stock Advisor recommendation. Gap is both a Stock Advisor and a Motley Fool Inside Value recommendation. Take the newsletter that best fits your investing style for a 30-day free trial.

Seth Jayson isn't hip enough for Guess? togs, so it's the stock only for him. At the time of publication, he had shares of Guess? and American Eagle, but no position in any other company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.