What To Expect From Guess Inc’s Q3?

by Trefis Team
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Guess (NYSE: GES) is scheduled to announce its Q3 2019 earnings on November 28. The company performed quite well in the first half, going by its performance over the first two quarters of 2019. For the Q2 2019, the company’s revenues increased by 14% to $646 million and increased 12% in constant currency. Guess’s performance was boosted by its rising comparable store sales and e-commerce sales in both Europe and Asia (especially China),  its well-positioned customer-centric strategies, growth through digital initiatives, and the building of its omni-channel capabilities. In Q2,  currency had a positive impact on diluted earnings per share of $0.05 and, as a result, diluted earnings per share increased 72.2% to $0.31 compared to $0.18 for the prior-year quarter.

Looking ahead, the company is focused on improving the customer experience in stores and online and improving assortments in compelling new product launches. Based on these factors the company forecasts 2019 third quarter sales to grow by 9% to 10% and adjusted earnings in the band of $0.27 to $0.30 per share. Please refer to our dashboard on Expectations from Guess’s Q3 Earnings.

Below are key factors that will likely drive Guess’s third quarter earnings results.

Guess’s Market Specific Strategies are working in its favor especially in Europe and Asia- Guess’s profitability in the wholesale business has been on a growing trend in Europe and Asia. In Q2 the European wholesale segment grew by 22.2% in U.S. dollars and 19.4% in constant currency, and the trend is expected to carry on in the coming quarters as well. The growth was propelled by a rise in comparable store sales, including e-commerce sales, and a host of store openings.  The e-commerce business in Europe was boosted by Guess’s own website along with the partnerships it forged with websites such as Zalando, and the Retail comp sales, including e-commerce, increased 5% in U.S. dollars.

The company also doubled its capital allocation for the Asian stores and the e-commerce business in Asia strengthened by a greater presence on websites like Tmall, JD.com, and Guess.cn. Asia revenues increased 32% in U.S. dollars driven by a rise in store openings and comparable store sales (which included e-commerce sales as well) increased 17% in U.S. dollars.

Focus On Higher Profitability And A Smaller Presence In North America – Guess has been suffering in North America for a few years due to a lack of footfall in the brick-and-mortar stores. Hence, currently the company is gradually trying to reduce its footprint and increase its profitability in the region.  For the Q2 quarter, Americas Retail revenues decreased 2.4% in U.S. dollars, and Retail comp sales including e-commerce increased 3% in U.S. dollars. The company created 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. For Q2, America’s Wholesale revenues increased 4.9% in U.S. dollars.

Guess’s rising e-commerce sales  –  Driven by the growing trend of online shopping,  online sales of the company have been on the rise  in every geography, underlining this to be a global trend, especially in Europe and Asia. With rising disposable incomes and people continuing to spend more online, this channel will constitute an increasing share of the company’s top line.

Well-positioned customer strategy and a steady focus on delivering a differentiated customer experience will fuel strong returns – Guess continues to revamp its business by improving the store experience, localizing assortments, and enhancing direct business. These measures will facilitate it to generate incremental sales and increase store transactions through higher conversion rates.  A sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept Guess afloat in a competitive environment. This is evident from the company’s positive earnings history.

Looking ahead, we believe that driven by the above trends, Guess is likely to grow further in Q3 and the rest of the FY 2019.


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