Guess?, Inc. (GES – Free Report) is sailing on rough seas, thanks to rising costs and adverse impacts from currency. This renowned apparel company tumbled nearly 17.4% in the past three months, against the industry’s rise of 16.7%. Let’s have a closer look at the factors that have dented this Zacks Rank #4 (Sell) stock.
Rising Expenses Weigh on Profitability
Occupancy deleverages stemming from increased European logistics costs as well as adverse impacts from rise in inventory levels in China and Europe are weighing on the company’s gross margin. The metric contracted 60 basis points (bps) during the fourth quarter of fiscal 2019. In fact, rising distribution and logistics costs in Europe have been a hurdle for the company for long. Markedly, this caused a 480-basis points (bps) decline in the Europe segment’s fourth-quarter operating margin.
Additionally, the company’s SG&A expenses are rising. Together, these factors had an adverse impact on Guess?’s earnings per share in the fourth quarter. The period marked the company’s second consecutive bottom-line miss. Although the bottom line in the reported quarter improved year on year, the same was affected by high costs.
Going ahead, management expects SG&A expenses to increase in the first quarter as well as in fiscal 2020 due to higher advertising costs. For the first quarter, management expects operating margin to decline in the range of 4-4.5%. Also, it anticipates loss in the range of 25-29 cents. We note that the Zacks Consensus Estimate for the first quarter has deteriorated from a loss of 15 cents to a loss of 26 cents in the past 30 days. Also, the consensus mark for earnings in fiscal 2020 has declined from $1.42 to $1.18 per share in the same period.
Currency Headwinds
Guess?’s solid international presence keeps it exposed to adverse currency fluctuations. In fact, management expects negative currency impacts of nearly 1 cent on earnings during the first quarter of fiscal 2020. Operating margin is likely to witness a decline of nearly 10 bps in the quarter.
Any Signs of Revival Ahead?
Nevertheless, Guess? is on track with boosting gross margin through IMU improvement and realignment of prices. Further, it is progressing well with improving cost structures as well as global growth of its banners though innovations and expansion of stores.
All said, it is to be seen if such growth-oriented efforts can counter the hurdles and help the company regain momentum.
3 Textile-Apparel Stocks You Can’t Miss
G-III Apparel (GIII – Free Report) , sporting a Zacks Rank #1(Strong Buy), has surpassed estimates in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
lululemon athletica (LULU – Free Report) with long-term earnings per share (EPS) growth rate of 18%, also flaunts a Zacks Rank #1.
Columbia Sportswear (COLM – Free Report) has long-term EPS growth rate of 10.9% and has a Zacks Rank #2 (Buy).
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