What’s Next For Guess’ Stock?
[Note: Guess’ FY’23 ended on Jan 28, 2023]
Guess Stock (NYSE: GES), a retailer that designs, markets, distributes, and licenses apparel and accessories for men, women, and children, declined roughly 12% year-to-date (YTD) – falling from about $21 to around $18 currently, underperforming the S&P500, which grew about 8%. Guess is cheap relative to its historical performance, which currently reflects the near-term outlook. However, we expect the stock to perform well in the long term. As a general protective move to shore up inventory, the retailer ordered products earlier than normal to deal with supply chain headwinds. The strategy seems to have worked in FY2023 (year ended Jan 2023), as the company has been able to deliver more products to wholesalers due to its accurate acquisition of enough products. Still, the foreign currency fluctuations (FX) are definitely a drag on the company and we expect the FX headwinds to continue in FY 2024 as well.
Guess had a soft Q4 2023 as the company’s sales increased 2% year-over-year (y-o-y) to around $818 million. America, Asia, and Licensing all experienced a decline, likely due to softening demand relative to the prior period. However, it should be noted that the standout performance was Europe, a segment increasingly looking like a stronghold for the business. A 10% y-o-y revenue growth in Europe was mainly driven by positive store comps, higher wholesale shipments, and net new stores. The significant headwind from the strong U.S. dollar partially offset these. On the bottom line, the company’s adjusted earnings grew 53% y-o-y to $1.74 in Q4, driven by share buybacks.
We forecast Guess Revenues to be $2.8 billion for the fiscal year 2024, up 2.5% y-o-y. Looking at the bottom line, we now forecast earnings per share to come in at $2.68. Given our revenues and EPS forecast changes, we have revised Guess Valuation to $21 per share, based on a $2.68 expected EPS and a 7.9x P/E multiple for the fiscal year 2024. That said, the company’s stock appears quite cheap at the current levels, with our valuation at an 18% premium from the current market price. For the full year 2024, the company expects low single-digit revenue growth, earnings per share between $2.45 and $2.80, and strong cash flow generation. Additionally, the company expects between a $0.31 and $0.25 per share loss in Q1 2024.
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