There’s No Guessing About Guess?, Inc. (GES)’s Latest Earnings

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By Jordan Faigen

Guess?, Inc. (NYSE:GES), a popular upscale American clothing line, reported first quarter results on Thursday, and the Street was definitely disappointed.

Guess in the News

The retailer beat analyst estimates of Q1 EPS of $0.06, reaching $0.03. However, the Street estimated revenue for the quarter of $528.44 million, and Guess only reported $522.5 million. With a decrease in the number of stores from the year before, comparable store sales were down 3.8% in U.S. dollars and 2.3% in constant currency compared year-over-year. Net revenue from Europe also decreased by 3.8% to $159.2 million and Asia also saw a 1.4% decrease.

An Analyst’s Perspective

Analyst Robert Ohmes of Merrill Lynch recommended SELL Guess?, Inc. (NYSE:GES) and cut his price target from $25.00 to $23.00, following these quarterly results. Robert cited, “ongoing weakness in North American retail and European wholesale,” as the main reasons for his underperform rating. The firm lowered 2Q15 EPS to $0.29 from $0.38 and lowered F15 EPS to $1.50 from $1.55.

Robert Ohmes’ Past Recommendations

Ohmes has a strong history recommending retail stocks such as athletic apparel companies Under Armour Inc (NYSE:UA) and Finish Line Inc (NASDAQ:FINL). These recommendations have helped Ohmes earn a +12.4% average return per recommendation and a 77% success rate of recommendations.

At the very end of last year in December, Ohmes recommended BUY Under Armour and raised his price target from $85.00 to $95.00. Ohmes was confident in the company’s ability to expand, noting, “Near-term top-line momentum should continue to be driven by expansion in core apparel, Direct to Consumer, and improving footwear trends. Longer term, UA should triple in revenues through growth in footwear (should become larger than apparel) and International (should become as large as the US).” Ohmes did also point out a few risks such as, “pressured margins related to high inventory levels, and delayed traction in international.” However, his confidence was well placed, as the stock went from $42.99 at the time of this recommendation, to $52.38 just one month later on January 30, 2014. Based on his two recommendations, Ohmes has earned a +9.4% average return on the stock.

Around the same time of his December Under Armour recommendation, Ohmes also raised his BUY Finish Line rating from SELL to BUY. Ohmes argued strongly in favor of the company, noting, “(1) improving running footwear pipeline which should drive improved comps, and (2) better than expected sales ramp-up of Macy’s in-store concepts for Holiday.” Ohmes has earned an +11.3% average return on the stock based on this recommendation.

However, Ohmes has also seen a few negative returns on his retail ratings. In November of last year, Ohme’s maintained his BUY Wal-Mart Stores, Inc. (NYSE:WMT) rating, following third quarter earnings. Ohmes argued, “While the payroll tax impact should continue in 2H13, we believe the outlook for WMT’s core customer is stable given falling gas prices y/y and unemployment has improved” and he pointed out that, “WMT’s US growth outlook remains supported by a combination of sq ft growth (+2-3% in F13 & F14E), EDLP focus and commitment to a broadened & more locally relevant merchandise assortment.” However, since this recommendation that stock has gone from $77.63 to $76.77 today, leaving Ohme’s with a -0.3% average return on the stock.

Many retail companies are starting to turn themselves around just in time for summer styles. But will you be guessing about what to do about Guess?, Inc. (NYSE:GES), or will you take Ohmes’ latest advice?

Jordan Faigen covers financial markets and the latest stock market news. She can be reached at [email protected]

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