Earnings Preview: Guess? Inc.

Guess? Inc. (GES) is scheduled to report its fourth-quarter and fiscal year 2011 financial results on Wednesday, March 16, 2011. Currently, the Zacks Consensus Estimate for earnings is $1.06 per share and revenue is expected to be $724 million for the reported quarter. For full year, earnings and sales are expected to be $3.12 per share and $2,454 million, respectively.

Third-Quarter 2011, a Synopsis

Guess? delivered record earnings per share of 75 cents in its third quarter ended October 30, 2010, beating the Zacks Consensus Estimate by 27.11%. Earnings were also up by 8.7% from 69 cents reported in the year-ago quarter and was also well ahead of the company’s guidance range of 55 cents to 58 cents.

Total revenue increased 17.4% year over year to $613.9 million, surpassing the Zacks Consensus Estimate of $579.5 million. The revenue, however, outpaced the company’s guidance range of $565 to $580 million. Revenue growth was positive across all segments, particularly driven by the Asia segment, which posted 35.1% growth followed by a 28% and 22% increase in the Europe and North American wholesale segments.

All the segments posted robust growth in the quarter under review. While the North American retail segment’s revenues increased 5.9% to $253.7 million, the North American wholesale segment’s revenues climbed 22.0% year over year to $56.3 million. Europe segment’s revenues went up 28.0% to $216.2 million driven by the company’s international expansion initiatives. The Asia segment’s revenues also surged 35.1% to $54.8 million in the quarter as the company’s expansion efforts paid off. The licensing segment delivered a growth of 18.6% to $33.0 million.

Management Guided

For the fourth quarter of fiscal 2011, Guess? expects net revenue to range within $710 million to $730 million, and operating margin of approximately 19.5%. This culminates into an EPS range of $1.02 to $1.06 per share.

For fiscal 2011, Guess? raised its revenue guidance to a range of $2.44 billion to 2.46 billion. Previous guidance was in the range of $2.35 billion to $2.40 billion. Operating margin is expected to be about 16.0%, down from its previous projection of 16.5%.

Earnings per share guidance are now expected between $3.02 to $3.06 per share compared with $2.80 to $2.85 stated earlier.

Fourth-Quarter 2011 Zacks Consensus

Analysts covered by Zacks expect Guess to post fourth-quarter 2011 earnings of $1.06 a share. The current Zacks Consensus Estimate represents a year-over-year growth of 10.41% and ranges from a low of 48 cents to a high of 81 cents.

The current estimate remained same over the last 30 days as none of the analysts revised their estimates. The current estimate inched up by 1 cent from the estimate prevailing 90 days ago.

Mixed Earnings Surprise History

With respect to earnings surprises, Guess has outpaced the Zacks Consensus Estimate by an average 15.62% over the last four quarters, ranging from 4.35% to 27.12%.

Our Recommendation

Guess? Inc.’s cost control efforts, balance sheet management, and growth opportunities makes the stock attractive for buying. In order to more effectively navigate through the difficult economic conditions, Guess has been working diligently to cut costs. Despite the recent economic conditions, global expansion continues to be the cornerstone of the company’s growth strategy. Again, the company is targeting to expand its retail business across the globe. With newer store concepts, management sees opportunities to increase the number of Guess? branded retail stores in Europe and also in North America. During fiscal 2011, the company plans to open 52 retail stores. However, these positive sides are offset by the highly competitive nature of the meat processing industry. Moreover, the bleak global economic scenario with increase in unemployment levels and significant volatility in the global financial markets has negatively affected the level of consumer spending for discretionary items.

Guess?, which faces stiff competition from Abercrombie & Fitch Co. (ANF) and Gap Inc. (GAP), currently holds a Zacks #4 Rank, implying a short-term Sell rating. On a long-term basis, we maintain a Neutral rating on the stock.

GUESS INC (GES): Free Stock Analysis Report

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