Stock Prices of Guess Drops by 40% in 2024: What Comes After?
Guess Inc. (NYSE: GES), a worldwide retailer of apparel and accessories, has witnessed a substantial drop of 40% throughout the year, closing at roughly $14 on December 30. This poor performance is notable contrasting the S&P 500 index. On the other hand, Gap Inc. (NYSE: GAP) stock has risen by 13% during the same period. So, why is Guess Inc. underperforming?
In its third-quarter results, Guess reported diverse regional performance, highlighting strength in European markets and Americas wholesale, but experiencing declines in North American and Asian retail segments. Although overall European sales amounted to 50% of total revenue, Guess faced pressure on margins due to high inventory levels and discounts. This led to a decrease in operating margin and earnings. The repeated downward adjustments to guidance from management also influenced the company's share price. It's worth mentioning that Guess's stock saw a rebound in 2024, as described in What’s Happening With Ericsson’s Stock?
Guess revised its full-year revenue forecast to 7-8% growth from an initial expectation of 9.5% to 11.0%. It also reduced its adjusted EPS estimate to $1.85- $2.00 compared to the previous prediction of $2.42 to $2.70. GAAP EPS is projected between $0.70 and $0.82. These results reflected increased marketing investments for international expansion and the integration of the rag & bone brand. Guess expects GAAP and adjusted operating margins to be between 6.1% to 6.4% and 6.2% to 6.5% for the full year 2025, respectively. For individuals seeking upside but a smoother journey than an individual stock, consider the *High Quality portfolio***, which has outperformed the S&P, and has garnered over 91% returns since inception.
Guess’ sales increased 13% year-over-year (y-o-y) to around $739 million in Q3, primarily due to the inclusion of the New York-based fashion brand Rag & Bone. Guess’s Q3 revenues in the American Wholesale segment grew 79% y-o-y to $99 million, while Americas Retail revenues grew 12% y-o-y to $172 million. European revenues increased by 7% y-o-y to $368 million, while Asia saw a 2% y-o-y growth to $65 million in sales. Licensing segment remained flat. The company’s adjusted earnings fell 31% y-o-y to 34 cents per share, with help from a decreased share count. Gross margins narrowed by 110 basis points to 43.6%, and the adjusted operating margin declines by 310 basis points due to lower gross margins and higher SG&A expenses.
Although GES stock has shown modest growth over the past years, the Trefis *High Quality (HQ) Portfolio, comprising of 30 stocks, has offered superior returns with reduced risk compared to the benchmark S&P 500 index over the last four years; providing a less volatile experience, as indicated in HQ Portfolio performance metrics*.
We estimate Guess’ Revenues for the fiscal year 2025 to be $3 billion, a 9% y-o-y increase. Given our changed revenues and EPS forecasts, we have revised *Guess Valuation* to $18 per share, based on a $1.86 expected EPS and a 9.8x P/E multiple for the fiscal year 2025. Guess’s stock looks moderately priced at its current level (Dec 30).
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Despite Guess's Revenue forecast revision and decreased EPS estimates for the full-year 2025, the Trefis 'High Quality Portfolio' has consistently outperformed the S&P 500 index, providing a less volatile investment experience. Given Trefis's estimated Revenue of $3 billion for Guess in 2025 and a current P/E multiple of 9.8x for the fiscal year, Guess's stock appears moderately priced according to Trefis's valuation analysis.
The Trefis analysis of Guess's stock suggests that the company's recent earnings decline, high inventory levels, and discounting strategy may have negatively impacted its operating margin and earnings, potentially contributing to its underperformance compared to the S&P 500 index.
