Guess’ Growth Is Expected To Accelerate In Fiscal 2019 On The Back Of Its Successful Growth Strategies

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Guess (NYSE: GES) had a successful fiscal 2018 (fiscal year ends in January) so far, going by its performance over the first nine months of the fiscal year. The company’s pursuit of a strategy of expanding its presence in Europe and Asia while gradually decreasing its presence in its domestic American markets, is working in its favor. It has witnessed a quarter over quarter improvement in its performance in fiscal 2018 and the growth rate is expected to accelerate in the next fiscal year. Guess is currently witnessing double digit growth in Europe and Asia. For its customer base, it is mainly targeting the millennials and in order to do so, it is strengthening its digital presence and upgrading its omni-channel capabilities. Additionally, 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. We have a $17 price estimate for Guess which is in line with the current market price.

Guess’ Market Specific Strategies

  • Europe

Guess’ profitability in the wholesale business is currently growing in Europe which is evident from the fact that despite not growing the number of wholesale dealers significantly over the past year, the revenues from the wholesale business kept growing. 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 will help Guess further with its supply chain management in Europe.

  • Asia
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In mid-2015, soon after Guess’ current CEO Victor Herrero assumed his position, he announced his expansion plans in Asia. Herrero has been extremely successful in the past in building a $4 billion business from scratch for Inditex Asia. He plans on growing Guess in a similar fashion in the Asian markets. Towards that end, 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 double digit y-o-y growth in the Asian markets for the first nine months of fiscal 2018 was driven by a rise in store openings and comparable store sales (which included e-commerce sales as well).

  • Americas

Due to a lack of footfall in the brick-and-mortar stores, Guess had been suffering in the Americas, specifically in North America for quite a few years in the past. Hence, currently the company is gradually trying to reduce its footprint and increase its profitability in the region. Currently, the Americas contribute over 40% to Guess’ total revenues. The management plans on reducing this contribution to around 25% in the future and it plans on achieving a 7.5% overall long term operating margin in the Americas. To achieve these goals, the company is creating a better balance between the American retail and wholesale businesses, while closing stores, improving its product offerings, and building a stronger online presence through celebrity endorsements, marketing, and promotions.

 

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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