Guess Stock Faces Decline Amid Mixed Performance and EPS Cut

Guess (GES) reports mixed performance, lowering its EPS outlook. The stock has dropped 40% year-to-date, contrasting with peers like Gap. Investors should consider the implications of these earnings adjustments.

Date: 03-01-2025

AI Rating: 5

Performance Decline
Guess' year-to-date decline of 40% compared to a 13% rise in Gap's stock highlights significant underperformance in the apparel sector. The mixed performance in regional markets, particularly the strength in Europe versus declines in North America and Asia, signals challenges for the company.

Impact of Revenue Growth and EPS Adjustments
Guess has revised its full-year revenue growth expectation downward from 9.5%-11.0% to 7%-8%. This adjustment reflects overall economic pressures and issues specific to the company, significantly affecting investor confidence and projections. The reduction in adjusted EPS estimates from $2.42-$2.70 to $1.85-$2.00 raises concerns about profitability and future performance. Furthermore, GAAP EPS projections suggest an even lower forecast between $0.70 and $0.82, which further compounds concerns about financial health.

Margin Pressures
The report indicates margin pressures due to high inventory levels and markdowns, with the operating margin anticipated between 6.1%-6.4% and adjusted operating margins from 6.2%-6.5% for the fiscal year 2025. The contraction of gross margins by 110 basis points to 43.6% and a decline in adjusted operating margin by 310 basis points to 5.8% reflects lower sales efficiency and increasing operational costs. These factors could lead to lower attractiveness of Guess stock for investiture.

Forecast and Valuation
Looking ahead, forecasts suggest revenue growth of 9% year-over-year, totaling $3 billion for FY 2025. However, the downgrade in EPS expectations and downward share price revision to $18 may dissuade investors. With the company priced lower than its forecasted valuation, some may view it as a potential buy; yet, caution is warranted given the current downturn and mixed operational metrics. Future performance will hinge on the company's ability to improve its margins and navigate market headwinds effectively.

Stocks: GES GAP