In Q2 FY 2018, Guess Is Expected To Continue Growing In Its International Markets, While Displaying A Lackluster Performance In The Americas

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Guess is slated to release its Q2 FY 2018 earnings on August 23rd (fiscal year ends in January). While expanding its businesses in Europe and Asia, the company is gradually decreasing its focus in the domestic American markets where it is facing headwinds mainly due to a decline in footfalls in the brick-and-mortar stores. Its current strategy in the Americas is decreasing its presence while increasing its profitability. Guess’ region specific strategies seem to be working as the company is witnessing healthy recovery of its performance in each successive quarter. The company is also making good progress with its strategic initiatives. Its supply chain initiatives improved the cost structure resulting in an estimated saving of $24 million in Q1 FY 2018. For the first quarter of fiscal 2018, Guess’ top line grew by 2% which is a considerable recovery from its 6% revenue decline in Q1 FY 2017. We expect the improvement trend to carry on in the second quarter as well.

Like most apparel companies, Guess is trying to connect with the millennial and Gen Z buyers. It is increasing its digital presence by transitioning all its websites into a state-of-the-art responsive site, which will improve the user experience with faster speed and less navigation steps. It is also upgrading its omni-channel capabilities and it continues to partner with marketplaces such as Tmall, JD, and vip.com in China, La Redoute and Otto in Europe, and Amazon in the U.S. and Canada.

How Is Guess Expanding Its International Reach?

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Guess has doubled its capital allocation for the Asian stores and the e-commerce business in Asia with a greater presence in websites like Tmall, JD.com, and Guess.cn. Around 35 stores are to be opened in Asia this year with a special focus on China.

Guess’ retail business in Europe is currently growing faster than its wholesale business. The European retail business accounts for around 55% of Guess’ total sales in Europe. The growth in Europe has been boosted by an increase in store openings, positive comparable sales, a greater footfall and sales conversion, and the rapid growth of e-commerce.

How Is Guess Focusing On Increasing Its Profitability In The Americas Market?

While it is closing more stores for the weak Guess? and Marciano brands, it is keeping more stores of the Factory and G by Guess brands which are performing relatively better. In 2017, Guess will close around 60 stores in the Americas and it expects to close around 100 to 120 odd stores in the next year. Its inventory management will continue in sync with the store closures in the region.

In the Americas, the wholesale business is doing better than the retail (especially in Canada and Mexico), though it has a bigger presence in the latter. It is striving to create a better balance between the American retail and wholesale businesses to reap more benefits from this changing trend. Guess is boosting its digital presence and is integrating its retail and e-commerce channels in the Americas. For an increased online reach, it is also undertaking marketing initiatives like hiring social media influencers and using celebrity endorsements. Guess plans on achieving a 7.5% overall long term operating margin in the Americas. Its profitability is currently being dampened by weak demand in the region.

 

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Guess

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