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Guess (GES) Down 6.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Guess (GES). Shares have lost about 6.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Guess due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Guess? Earnings Beat Estimates in Q2, Sales Increase

Guess? reported second-quarter fiscal earnings of 96 cents per share. The metric surpassed the Zacks Consensus Estimate of 68 cents. The company reported an adjusted loss of a cent in the year-ago quarter. In the reported quarter, share repurchases had a positive impact of 3 cents and currency rate had minimal impact on the bottom line.

Adjusted earnings surged 152.6% from 38 cents reported in the second quarter of fiscal 2020. This includes positive impacts from share repurchases worth 13 cents, while currency rate had minimal impacts.

Net revenues amounted to $628.6 million, which missed the consensus mark of $639.5 million. The metric went up 57.7% from $398.5 million reported in the year-ago quarter. On a constant-currency (cc) basis, net revenues surged 51.1% year over year. The upside can be attributed to sales momentum across all regions, other than Asia.  Revenues from products sales as well as royalties reflected growth.

The company’s net revenues declined 8% from $683.2 million reported in second-quarter fiscal 2020. The downside was caused by permanent store closures worth nearly 5% as well as the shift of European wholesale shipments into the third quarter. Management highlighted that capacity restrictions and lower demand were other headwinds.

The company’s gross margin expanded to 46.8% from 36.9% reported in the year-ago quarter. As a percentage of sales, SG&A expenses declined to 32.8% from 37.7% reported in the prior-year quarter’s level.

During the quarter, adjusted earnings from operations came in at $88.6 million against an adjusted operating loss of $0.9 million posted in the year-ago quarter. Adjusted operating margin came in at 14.1%, up 14.3% year on year on the back of expense leverage. Compared with second-quarter fiscal 2020 levels, adjusted earnings from operations improved 84.9% and adjusted operating margin increased 7.1%.

Segment Performance

Revenues in the Americas Retail segment surged 69% year over year on a reported basis, while it increased 66% at cc. Revenues fell 6% from second-quarter fiscal 2020 levels, mainly due to store closures. Operating margin in the Americas Retail segment came in at 20.4%.

Revenues in Americas Wholesale unit rallied 146% (up 137% at cc) year over year. Revenues were up 19% from second quarter fiscal 2020 levels. Operating margin in the segment amounted to 26% compared with 8.3% in the prior-year quarter.

The Europe segment’s revenues surged 57% (up 48% at cc) year on year. Revenues fell 5% from second-quarter fiscal 2020 levels, due to pandemic-led traffic declines. Segmental operating margin came in at 15.9% compared with 10.1% in the year-ago quarter.

Asia revenues declined 5% (down 10% at cc) year on year. The metric fell 43% from second-quarter fiscal 2020 levels, due to permanent store closures.

Licensing revenues advanced 81% year over year. The unit’s revenues were up 18% compared with second-quarter fiscal 2020 levels, driven by strong performance in footwear and perfume. Operating margin came in at 91.9% compared with 94.8% in the year-ago quarter.

Other Updates

The company exited the quarter with cash and cash equivalents of $458.9 million as well as long-term debt and finance lease obligations of $79.9 million. Stockholders’ equity was $610.3 million. Net cash provided by operating activities for the six months ended Jul 31, 2021 amounted to nearly $43 million, while free cash flow amounted to $18.5 million.

COVID-19 Update

The pandemic-related disruptions continue to impact the company’s operations, as depicted by decline in revenues in the reported quarter, when compared to second-quarter fiscal 2020. Given the circumstances, the company is continuing to manage expenses prudently to maintain profitability. In the reported quarter, the company opened stores that were closed in first-quarter fiscal 2022 due to pandemic-led restrictions. Accordingly, these stores were closed for approximately 5% of the total days during second-quarter fiscal 2022, mainly in Europe and Canada. As of Jul 31, 2021, 100% of the company’s stores were open.

Outlook

For third-quarter fiscal 2022, the company expects revenues to be negative to flat compared with third-quarter fiscal 2020 levels. This indicates that pandemic-led traffic declines will be offset by growth in global e-commerce business and favorable shift of European wholesale shipments.

For fiscal 2022, management continues to expect revenues to decline in mid-single digits from fiscal 2020 levels, considering that there will not be any more pandemic-related closures. The company expects operating margin to come in at nearly 10% in fiscal 2022. The view includes expectations of a back-to-normal pace of product development in the European wholesale business.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.94% due to these changes.

VGM Scores

At this time, Guess has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Guess has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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Guess, Inc. (GES): Free Stock Analysis Report
 
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