Guess’ Q3 Fiscal 2018 Might Show Further Improvement In Performance Boosted By Sales In Europe And Asia
Guess (NYSE: GES) is slated to release its Q3 FY 2018 earnings on November 21st (fiscal year ends in January). The company is currently following a strategy of expanding its presence in Europe and Asia while gradually decreasing its presence in its domestic American markets. The footfall decline in the American brick-and-mortar stores has been the reason for Guess’ weak performance for the last few years and hence, the company is turning into markets where its products are better received. This strategy is gradually reaping benefits for the company as is witnessed by the quarter over quarter improvement in its performance since the end of last year. For the second quarter of fiscal 2018, Guess’ top line grew by 5% to $574 million which is a considerable recovery from its 3% revenue decline in Q2 FY 2017. Even compared to its Q1 fiscal 2018 top line growth of 2%, the second quarter’s revenue growth was significantly higher. Currently, Guess is targeting the millennials as the main segment of consumers for its apparel and towards that end, it is strengthening its digital presence and upgrading its omni-channel capabilities. It is 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 has recently partnered 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 in order to further build the omni-channel capabilities. Guess is experiencing double digit growth in both Europe and Asia and this is primarily on account of new store openings, healthy wholesale businesses, and a growth in the comparable store sale figures. It is shutting down stores in the Americas due to their persistently weak performance. We have a $18 price estimate for Guess which is in line with the current market price.
Guess Continues To Grow In Europe
In the European markets Guess’ net revenues for the first half of fiscal 2018 grew by 21% y-o-y mainly driven by a rise in comparable store sales and also a double-digit growth in the wholesale business’ revenues. Guess’ profitability in the wholesale business is currently growing in Europe which is evident from the fact that despite not significantly increasing the number of wholesale dealers over the past year, the revenues from the wholesale business keep growing. Guess has opened new stores in regions including Italy, Spain, UK, Netherlands, Switzerland, Russia, and Poland so far in fiscal 2018. A few months ago, the company opened a new 625,000 square-foot distribution center in Venlo, in the Eastern part of the Netherlands. The distribution center, expected to be fully operational by the end of fiscal 2018, will help Guess further with its supply chain management in Europe.
It Is Building A Bigger Presence In Asia
Guess’ current CEO Victor Herrero had plans of major expansion in Asia ever since he assumed his position in mid-2015. Herrero, who had a tremendous success story of building a $4 billion business from scratch for Inditex Asia, wanted to replicate the same growth for Guess in Asia. Towards that end, in Q3 fiscal 2016, the company hired a new Director for China and a new Director of the Middle East, India, and Southeast Asia. Both the directors are Mr. Herrero’s ex-colleagues from Inditex. Further, the company doubled its capital allocation for the Asian stores and the e-commerce business in Asia was strengthened by a greater presence on websites like Tmall, JD.com, and Guess.cn. The company’s 16% y-o-y growth in the Asian markets for the first half of fiscal 2018 was driven by a rise in store openings and comparable store sales (which included e-commerce sales).
The Company Is Focusing On Higher Profitability And A Smaller Presence In North America
In the first half of the fiscal year, though Guess’ American wholesale business witnessed a growth of around 6% to $69 million, the retail segment’s revenues fell by 13% to $375 million. Guess is gradually trying to reduce its footprints and increase profitability in the region.The Americas are expected to represent only 25% of its business in the future and it plans on achieving a 7.5% overall long term operating margin in the Americas. Towards that end, the company is taking several steps, including: creating a better balance between the American retail and wholesale businesses; store closures (it plans on closing a total of 70 stores in the Americas by this fiscal year end); improving its product offering which will include inputs from customer feedback; and, building a stronger online presence through celebrity endorsements, marketing, and promotions.
Notes:
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)