What Is the Fundamental Value of Guess Based On Expected 2019 Results?

by Trefis Team
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Guess (NYSE: GES) has seen decent growth in its top-line and steady profits the past several years. During the latest quarter, net sales of the company rose by 10% to $605 Million and Increased 13% 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), growth through digital initiatives, its well-positioned customer-centric strategies, and the building of its omni-channel capabilities. Guess’s profitability in the wholesale business has been on a upward trend in Europe and Asia. In Q3 the European wholesale segment grew by 20.2% in U.S. dollars and 16.9% in constant currency, and the trend is expected to carry on in the coming quarters as well. This 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 like Zalando, and the Retail comp sales, including e-commerce, increased 9% in U.S. dollars.  A sustained focus on cost containment, inventory management, merchandise, and speed-to-market initiatives has kept Guess afloat in a competitive environment.

These 5 segments are expected to continue to drive future revenue and profitability growth for the company, in line with the guidance provided by the company, where the Europe segment will continue to be the major contributor to its top line growth. The company is focused on staying close to its customer, improving the customer experience in stores and online, and improving assortments in compelling new product launches with steadier footing in FY2019.

We have summarized our forecasts in an interactive model Guess’ Fundamental Value Based On Expected FY ’19 Results. You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The image below shows one of the key steps in identifying Guess’ valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which then impacts value (assuming a constant PE multiple).

The Company is focused on improving the customer experience in stores and online and improving assortments in compelling new product launches. They still see a lot of opportunity in the Europe and Asia geographies, where they will continue to allocate capital and  plan to continue growing sales while also expanding margins. They also plan to keep working on improving the profitability of the Americas by executing on their cost reduction and margin improvement initiatives. All these factors, coupled with strong sales momentum, will enable Guess Inc to continue to grow its top line in 2019 and beyond. If you have a different view, you can modify various inputs to see how changing inputs impacts the company’s valuation. You can share the links to scenarios created on our platform.

 

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