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Guess, Inc. Sees European Sales Drop; Can It Buck This Trend?


Despite lower sales in Europe, Guess has maintained decent revenue growth and rising share prices. Tonight's scheduled earnings report should reveal more.

Guess, Inc (NYSE:GES) is an American apparel company that was founded in Los Angeles, CA, in 1981 by Paul and Maurice Marciano, two brothers from France. Guess designs, markets, distributes, and licenses apparel and accessories such as watches, jewelry, and perfumes to men and women. The company has operations in various countries in Europe and Asia in addition to its locations in the United States. With a current market cap of just over $2.5 billion, Guess is a major player in the clothing industry, comparable to American Eagle (NYSE:AEO), whose market cap is $3.78 billion.

Guess opened today, May 30, 2013, with a share price of $29.15, seven points higher than its 52-week low of $22.48 in November 2012 and five points below its 52-week high of $34.10 last summer. Overall on the year, Guess has seen its stock trend upward with a year-to-day increase of over 20%. As the company prepares to release its earnings report today, all eyes will be on how Guess does against analysts' projections. At the moment it is expected to report first quarter earnings for the 2014 fiscal year of $.08 per share on revenue of $550 million. Unfortunately for Guess, these numbers are lower than what the company would like. Guess has seen a sharp decline in its European sales in the past two years as consumers are weathering the current financial stagnation and have decreased spending on clothing as a result. Guess experienced a decline in revenue from Europe of 7% in the 2013 fiscal year and it does not look as though it will buck this trend. Cold weather has also hurt Guess' sales in the United States as the demand for spring and summer clothes has fallen by 12% this year (source: Forbes). However, despite tough times in Europe and America, Guess has been wildly successful in Asian markets where its revenues have grown by nearly 50% over the past two years, increasing from $200 million to $290 million. Despite its recent struggles in the European market, Guess has maintained decent revenue growth, and as mentioned earlier, it has enjoyed rising share prices since last November, which will make it all the more interesting to see how investors respond to the earnings report scheduled to be released after the close today.

Trade: Selling the June 29.8-30.8 Bear Call Spread for $.40
Risk: $60 per 1 lot
Reward: $40 per 1 lot
Breakeven: $30.20

Greeks of this Trade:
Delta: Short
Gamma: Short
Theta: Long
Vega: Short
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