The specialty retailer Guess (NYSE:GES) operates its retail and wholesale channels in North America, Europe and Asia. Guess has witnessed a relatively weak fiscal 2013, with the first three quarters registering a revenue decline driven by weakness in Europe and North America. However, its Asian business has been growing at a healthy rate. Although currently Asian operations account for just under 10% of Guess’ total revenues at $250 million, the growth potential remains strong with the right strategy and execution. 
Asia Is A Lucrative Market For Guess
Asia is one of the most important markets for apparel retailers with China being the focal point due to its population size, booming middle class and rising disposable income.  While some western apparel retailers such as Abercrombie & Fitch (NYSE:ANF) are just beginning to expand in the Chinese market, Guess has the advantage as Abercrombie is still in the early stages with only three stores in the region.  Gap (NYSE:GPS) opened its first stores and online shopping in China in late 2010 and opened its first outlet store in the recent quarter.  Moreover, the lack of competition from retailers such as American Eagle Outfitters (NYSE:AEO) and Aeropostale (NYSE:ARO) makes this region even more important for Guess.
While the overall revenues increased by 8% in fiscal 2012, revenues from Asia surged by 20%. Moreover, the region’s annual revenue growth has averaged 20% over the past three years. In the latest results, Guess reported revenue growth of 16% in Q3 fiscal 2013 from the Asian markets, following growth of 21% in the previous quarter.
According to our estimates, the Asian operations constitute around 15% of the company’s value.
Guess’ growth in Asia was driven by its strong expansion in the region.  During the third quarter of fiscal 2013, the retailer opened 21 stores and 45 concession shops, and has 40 stores planned for the next year.  In comparison, the retailer plans to open 50 stores in the U.S.
Guess also partnered with a licensee in China during the last quarter, which operates more than 2,400 stores across the region.  This positions the retailer well in the Chinese market and will enable it to fuel its long term growth.
In 2008, Asian operations contributed only 6% to Guess’ revenues, and this figure rose to 9% in 2011. Driven by the market potential, its expansion plans and a strong brand image, we expect the revenue contribution to go expand to 20% towards the end of our forecast period.
Guess’ brand portrays a fun and fashionable image. The retailer has successfully combined product design, in-store experience and marketing to communicate the spirit of its brand. The brand has been able to establish a strong identity with its customers, which in turn fosters demand for the retailer’s products. Apart from enhancing the product offerings, the retailer is also working with department stores to expand its square footage within existing doors.
Our price estimate for Guess stands at $28, implying a premium of about 15% to the market price.Notes: