Nearly Half Of Guess’ Revenues Will Come From Europe This Year

Guess (NYSE: GES) designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. Guess’ total revenue for fiscal 2019 (ending February) grew 10.4% year-over-year to $2.6 billion driven by healthy growth in Europe and Asia from increasing store count, rising share of online sales, strong comparable sales growth, and growth in the wholesale business.

Trefis captures trends in Guess’ Revenues over recent years in an interactive dashboard. We expect Guess to achieve steady revenue growth and add approximately $100 million to its total revenues in FY’20. Notably, Europe’s share of Guess’ revenues have increased from 33% in fiscal 2016 to almost 44% in fiscal 2019, and we expect the figure to touch 45% for the current fiscal year. You can understand division-wise revenue performance, and alter the assumptions to arrive at your own estimate for the company’s revenues in the dashboard. In addition, here is more Trefis Textiles, Apparel and Luxury Good Industry Data

What Are Guess’ Operating Segments

• Americas Retail:The segment includes retail stores and concessions in North and South America. It also includes the e-commerce business which has directly operated retail and other marketplace websites in the U.S., Canada, Mexico, Brazil, Chile, and Peru.
• Americas Wholesale: Under the segment, Guess sells products through wholesale channels spread out across the Americas and to third-party distributors based in Central and South America as well as licensed retail locations operated by wholesale partners.
• Europe:  This segment includes European retail stores, e-commerce sales and the wholesale business which sells Guess apparel and accessories in Europe.
• Asia: The division includes retail, wholesale and e-commerce sales of Guess apparel and accessories in Asia.
• Licensing: Under this segment, the company offers trademark license agreements to operators that manufacture and distribute apparel and accessories.

Historical Trends in Guess’ Revenue

• Guess has added more than $425 million to total revenue since 2016 at an average annual rate of 6.1% driven 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.
• Moreover, accelerated store openings in Asia and Europe have also provided a boost to the company’s revenue over the last few years
• Going forward, we expect Guess to achieve steady revenue growth, with the company’s revenue increasing by 3.7% (y-o-y) to $2.7 billion in FY 2020

Understanding Guess’ Revenues By Segment

Americas Retail

• Americas retail has lost more than $150 million in total revenues over the last three years, with the segment’s revenue declining at an average annual rate of 5.7%.
• Adverse impact of closure of a number of stores over recent years due to lower customer traffic in brick-and-mortar stores has been the primary reason for the fall in revenues. However, this decline has been partially offset by an upswing in online retail sales.
• We expect this segment’s revenues to grow by 2% to $840 million in FY’20 with the segment’s contribution sliding to just 30% from 45% in FY’16

Americas Wholesale

• Although, Americas Wholesale constitutes less than 7% of Guess’ total revenues, this segment has achieved steady growth since 2016. The segment’s revenue has increased from $155 million in 2016 to around $170 million in 2019, implying an average annual growth rate of 3.2%.
• Segment revenue increased by 13.6% (y-o-y) in FY 2019 driven by higher shipments primarily in the U.S. and Mexican wholesale business.
• Increased focus on wholesale business due to slowdown in retail store sales has benefited the segment over recent years

Europe

• Europe has been the company’s fastest-growing segment. Europe has added roughly $420 million to total revenues since 2016 at an average annual rate of 16.5%.
• As a result, Europe’s contribution to Guess’ revenues has increased from 33% in 2016 to roughly 44% in 2019.
• This growth can be primarily attributed to an increase in store count, higher shipments in wholesale business, and comparable sales growth.
• Moreover, the company’s focus on linking brick-and-mortar stores, e-commerce, and mobile sales to improve online operations has further aided the segment’s growth
• We expect this segment to continue its growth trajectory, with revenues increasing at a rate of 5.5% to $1.2 billion in FY ’20.

Asia

• Asia has added roughly $150 million to total revenues since 2016 at an average annual rate of 17.4%. Like other apparel companies, the contribution of Asia to Guess’ total revenue has seen robust growth over the years.
• Asia’s contribution to total revenues has increased from less than 11% in 2016 to almost 15% in 2019.
• We expect the segment to maintain its growth trajectory and record more than $400 million in revenues in FY 2020. This growth is expected to be driven by rising customer base and an increasing online presence.
• Moreover, increasing digital sales in China will also remain a major contributor to the segment’s progress.

Licensing

• Licensing revenue has been volatile over the last few years.  After plunging by more than 14% in 2017, this segment recovered to reach around $83 million in 2019.
• We expect this segment’s revenue to marginally decline in FY’20 mainly due to lower sales from associating partners

Starting with our forecast for Guess’ revenues, we estimate the company’s adjusted EPS for full-year 2020 is to be around $1.25. Using this figure with our estimated forward P/E ratio of 17x, this works out to a price estimate of $21 for Guess’ stock

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