If beating the tar out of analyst estimates has gotten boringly common for Guess? (NYSE:GES), I'll take a few more helpings of tedium.

Today, the resurgent retailer announced guidance for the fourth quarter and full year that leapt way ahead of anything Wall Street expected, and it's a lot better than yours truly (a shareholder since below $15 a stub) hoped for as well.

Management now says that Q4 earnings should come in at $0.91 to $0.93 per share, which compares very favorably to the $0.57 per ticket for last year's Q4, and the middle of that range is also an incredible 28% more than analysts were predicting.

For the full year, earnings are expected to come in somewhere around $2.61 per share, or double last year's tally.

Simple math
How has Guess? managed this trick? Simple, it's been having reasonable sales growth but accomplishing that at full prices. When you don't discount, margins stay strong, and the leverage you get from retail (in the good times) jacks earnings up far in excess of revenue growth.

And though the margins at Guess? have improved greatly (see the table below), they still don't match the 19.2% and 12.4% net margins achieved by peer Abercrombie & Fitch (NYSE:ANF).

FY Ended

FY Ended

FY Ended

FY Ended


Gross Margin






Operating Margin






Net Margin Ex Items






Guess? also credited the results to strong sales of its fat-margin accessories. Those familiar with the Guess? story know just how potent that business may be in the future, especially as the company expands globally. Consumers in Europe will pay a lot more for the same Guess? bag than U.S. shoppers will, meaning that increasing sales across the pond could power the margins at Guess? beyond those we typically associate with American mall-based retailers.

Don't trust your instincts
I still love to tell people "the Guess? story." My wife found this stock after a trip to the mall left her wondering just how quickly the company would "go bankrupt." She only saw the empty stores. But then -- like a true investor -- she looked past that piece of potent (but statistically meaningless) data and dug up the numbers, and what she thought she saw was a stock that deserved to double. Alas, she had that wrong. Once we re-ran the numbers to account for margin improvements we could see were already in play, it looked like a clear triple.

And since the sales growth and margin improvements have outrun our conservative estimates, we've had the excitement of being wrong to the tune of more than 400%. The extra return has been welcome, of course, but the original thesis was incredibly easy to see. The gains at Guess? didn't take much guesswork at all.

Hotter names, smaller returns
Here's what's more strange, in my opinion: Guess? still generates nearly no buzz. The message boards are silent except for the pathetic cries of a few unlucky (unthinking) shorts who think that all quickly-appreciating stock prices are undeserved. Apparently, many people still remember the acid-washed, peg-cuffed '90s and assume that Guess? is destined to hit the halls at Target (NYSE:TGT) or Wal-Mart (NYSE:WMT) like so much Mossimo. But there are few retail stocks that have performed as well over the past couple years.

For instance, growth chasers who put more emphasis on their sense of what's "in" latched onto newer names -- like True Religion (NASDAQ:TRLG), or even Volcom (NASDAQ:VLCM) and Zumiez (NASDAQ:ZUMZ) -- and they're a pretty vocal crowd. But here's the reality: Guess? has trounced all of them over the past two years.

Fool's final word
I love retail investing because it's volatile and it's something you can get your hands on. Volatility presents opportunity, and you're just a mall trip away from ideas. But the more I study the game, the more I realize that "buy what you know" is a dangerous delusion for many investors, because they think they know a lot more than they do. Full store = good investment? Not always.

"Challenge what you think you know," and "look at the numbers," are far better advice. Looking past the volatility and ignoring the brands that everyone "knows" are the future are always good ways to invest where the crowd isn't. And when the crowd arrives late to the game, it'll be willing to pay you handsomely for your foresight.

For more on the rise of Guess?, check out:

Wal-Mart is a Motley Fool Inside Value selection. Zumiez and Volcom are Motley Fool Hidden Gems recommendations. A free trial to either newsletter is available by merely clicking the pretty blue letters.

At the time of publication, Seth Jayson had shares of Guess? but no positions in any other company mentioned here. He's a part of the Global Gains team, looking for the world's best investment opportunities. View his stock holdings and Fool profile here. Fool rules are here.